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Towards a Better Social Order 






R. H. C, K. L., P. M. 0., C. G. R., 
E. D. S., E. T. S., T. S., T. F. T. 

- Prinied in Great Britain 


This little book is the outcome of discussions 
carried on by a group of Manchester men, mostly 
engaged in industry, who were asked by the Man- 
chester Liberal Federation to consider what ought 
to be the main hnes of a Liberal industrial poUcy. 

FeeUng real sympathy with many aspects of the 
protest against the existing economic order, they 
were convinced that a generous programme of 
reconstruction, inspired by clearly thought out prin- 
ciples, must be undertaken if the nation is to be 
saved from ruin. They found no hope of a real 
solution in a poUcy of hand-to-mouth makeshifts 
and " concessions," such as seemed to them likely 
to be followed by a Coalition of men of widely 
varying principles. On the other hand, the Labour 
Party appeared to them to waver between two 
mutually incompatible doctrines, both abstract, 
ill-defined and undigested ; and the more they 
studied the problem, the more convinced they 
became that the best hope of a steady approximation 
to greater justice and a finer spirit of freedom and 
comradeship in industry lay in a courageous and 
clear-thinking redefinition of LiberaUsm in relation 
to modern needs and conditions. 

They did me the honour of inviting me to share 
in their deliberations, and the further honour g| 



asking me to write a little book, which should 
express the standpoint and outlook at which they 
had arrived, without attempting to define a detailed 
cut-and-dried programme. Though I hesitated be- 
cause I was conscious of the inadequacy of my 
equipment for such a task, I undertook it in the 
hope that their knowledge and experience would 
make good my deficiency. For the book as it 
stands — for its arrangement and structure, and 
for many of its ideas — I am responsible. But every 
section has been fully discussed by the members of 
the group ; and though there are some pages which 
one or other of them would not be ready fully to 
endorse, they accept the book as a statement of their 
point of view. It owes a great deal to their pointed 
and searching criticism ; I wish that its pages 
more adequately reflected the practical knowledge, 
the firm sanity, and the breadth of sj'^mpathy which 
marked their discussions. It owes much, also, to 
the encouragement and criticism of Lord Haldane, 
to whom I desire to express my gratitude ; he was 
good enough to read the manuscript, and to send 
me many helpful comments and suggestions. 

We do not want to be regarded as defining a rigid 
programme, still less as offering to our readers a 
cocksure solution, a panacea guaranteed to cure 
every social malady. For that reason we have been 
at pains to avoid the precision of detail appropriate 
to projects of legislation. For although the aims we 
have outlined can only be attained by means of a 
series of legislative measures, our primary purpose 
has been to define a spirit and a point of view which 
can inspire generous -minded men, of many different 


types, to work together in freedom and comrade- 
ship for the making of a better world. We feel the 
immense complexity and delicacy of the subjects 
we have tried to discuss, and the folly of treating 
them with any pretence of infallibility. Knowing 
ourselves to be honest men who desire to serve 
the Commonwealth, we credit those who differ 
from us with the same honesty and the same 
good intent ; and if any note of acrimony has crept 
into the following pages, it is against our will, 
and we deplore it. For the deepest of our beliefs 
is that the spirit of hatred, between one party 
and another or between one class and another, 
can never bring anything but evil. We should 
not be Liberals if we did not believe in the positive 
value of a great variety of methods and opinions, 
and in the duty of trying to understand one another 
and to respect one another's convictions. 

The book has been generally approved by the 
Manchester Liberal Federation in the terms of the 
resolution appended hereto. But beyond this it 
has no official character. 

R. M. 

September, 1920. 

Resolution of the Manchester Liberal 

That this General Council of the Manchester 
Liberal Federation (the Liberal 3,000 of the ten 
Parliamentary Divisions of Manchester), after a 
public reading of Mr. Ramsay Muir's book on 


" Liberalism and Industry," affirms its complete 
agreement with his interpretation of the spirit and 
outlook of modern Liberalism, and warmly com- 
mends the suggestions made in the book as a basis 
for the solution of the many social and industrial 
problems with which the nation is confronted. 












































The purpose of this little book is to consider 
whether the ideas and the point of view to which 
the name of *' Liberahsm " is given can provide 
useful guidance towards the solution of the social 
problems by which we are surrounded ; and whether 
these ideas are capable now, as they have been in the 
past, of inspiring a real enthusiasm, and a confidence 
in the future, such as can supply the motive force 
of a great work of national reconstruction. 

Liberalism is a habit of mind, a point of view, 
a way of looking at things, rather than a fixed and 
unchanging body of doctrine. like all vital creeds, 
it is a spirit, not a formula. It gets expression, 
from time to time, in formulae and programmes of 
policy ; but these are always and necessarily 
determined by the circumstances of the time in 
which they are framed. They can therefore have 
no permanent validity. They need to be con- 
tinually revised and recast, or they become mere 
shackles on the spirit which they try to express. 

Liberalism does not pretend to have a knowledge 



of the ultimate truth about human society. It 
has no certain vision of the millennium, and knows 
of no short cut for attaining it, such as some other 
political creeds profess. Its inspiration is the 
more modest belief that there are certain broad 
ideas, and a certain outlook, which will provide, 
amid all the unpredictable changes in the conditions 
of human life, safe guidance for honest men in their 
unending struggle towards justice, freedom, and 

But the ways in which these ideas and this outlook 
should be expressed in action have to be redefined, 
by hard thinking, as new conditions arise. Often 
enough the Liberal, if he will be honest with himself, 
has to admit that the formulae in which his pre- 
decessors expressed their beliefs are no longer valid, 
and perhaps even that they were at no time an 
adequate expression of the ideals of Liberalism. 

For that reason, it is not enough to assert roundly 
that " Liberal Principles " are a sufficient guide 
to political action. They are not a sufficient guide 
until they have been redefined in the light of new 
needs and new conditions. 

There never was a time when redefinition was 
more necessary, or when the old formulae seemed 
to be more barren, than to-day, when the whole 
world is dissatisfied with its old modes of organisation 
and is seeking impatiently for the clue to a new order 
of things. In face of such conditions, vague talk 
about " Liberal Principles " is felt by many to be 
Uttle less than an insult. What men demand, and 
rightly demand, is a clear exposition of the answer 
which the Liberal spirit will give to certain criticisms 


of the existing order, a clear definition of the evils 
which it recognises, and a clear account of the way 
in which it will try to remedy these evils. 

Five main questions demand treatment in any 
such redefinition. First of all (because it is the most 
urgent question of the moment), how would Liberal- 
ism approach the reconstruction of our economic 
system, which is in danger of breaking down because 
it no longer commands the confidence of those who 
have to work under it ? Secondly, how would 
Liberalism propose to meet the demand of the 
mass of men for a wider and fuller life than it is now 
possible for them to enjoy ? Thirdly, what defects 
does Liberalism perceive in our political system, in 
our machinery for the co-operative regulation of 
common concerns, and how would it deal with 
these defects ? Fourthly, what is the attitude of 
Liberalism on the mutual relations of the various 
members of the British Commonwealth of Nations, 
and, in particular, how would it deal with the highly 
dangerous unrest now existing in Ireland, in Egypt, 
and in India, and with the needs or claims of the 
more backward peoples included in the Common- 
wealth ? Fifthly, how would Liberalism approach 
the vexed problems of international relationship, 
and what would it do to remedy the conditions 
which have recently brought upon the world such 
tragic misery and ruin ? 

All these vast questions are closely related. 
No one of them can be thought about intelligently 
except in connexion with the others. But it is 
convenient to deal with them separately ; and in 
the present essay we shall confine ourselves in 



the main to the first two of our five questions, 
touching on the others only incidentally. 

Before we can profitably attempt to define the 
attitude of Liberalism on these great issues, it will 
be well to consider afresh what are the essential 
ideas of Liberalism which we are to endeavour 
to apply : what is the attitude of mind which 
guides the Liberal when he thinks about all these 



(1) The essence of Liberalism, as its very name 
suggests, is a deep concern about the preservation 
and enlargement of Liberty as an essential condition 
of the highest human welfare. 

This may not seem to tell us very much ; for 
the great name of Liberty may be used in different 
senses. As we shall see, Liberalism itself has 
gradually learnt to give to this great word a deeper 
and fuller meaning. By Liberty we do not mean the 
right to make whatever use of our powers we think 
fit ; that conception, logically developed, would 
lead us straight back to the brutaUty of the jungle, 
which is not real liberty at all — not even for the 
strongest beasts. We mean the liberty which men 
can only enjoy in organised societies, wherein each 
is strengthened and protected by the co-operation 
of all. Real liberty is not the mere absence of 
restraints ; it is security in doing, by a man's free 
choice, all or any of the things that are worth doing, 
and that are not harmful to his fellows ; and it 
can only be enjoyed in its fulness in a society where 
all men are equally free, because equally protected 
by the common action and opinion of the com- 

18 2 


Every political creed, it may be said, would 
subscribe to such a view, and would define Liberty 
as one of its aims. But there are diJBferences of 
emphasis ; and it is in these differences of emphasis 
that the real distinctions between poUtical creeds are 
to be found. 

Thus one school of thought, while professing to 
value liberty, places so high a value upon national 
strength and prestige that it is willing to make 
great sacrifices of individual or social liberty in 
order to attain it. The Liberal values national 
strength mainly as a safeguard for liberty ; he is 
anxious lest national strength should be used to 
impair the hberty of other peoples ; and his instinct 
is to scrutinise very jealously every sacrifice of 
liberty that is claimed to be necessary for the sake 
of national strength. 

Another school of thought attaches so much 
importance to efficiency, and to the maintenance of 
authority and orderly government, that in practice 
it tends to subordinate liberty to these ends, by 
giving great power into the competent hands of 
expert administrators or bureaucrats. The Liberal 
recognises that a certain degree of inefficiency may 
be the price which has to be paid for Hberty. He is 
wilUng to pay this price, believing that free England, 
in spite of its many defects, has been a better land 
to five in, and has produced a finer type of manhood, 
than efficient Germany. 

Yet another school of thought holds that the 
supreme object of the State ought to be the securing 
of material comfort for every citizen ; and, as a 
means to this end, it is willing to endure, and to 


impose upon the whole community, a great deal 
of brigading, regulation, and control. The Liberal 
also desires the widest possible diffusion of material 
comfort. He recognises that a reasonable degree 
of material comfort is a condition of real liberty, 
and that a considerable amount of regulation and 
control is necessary to secure this end. But he is 
not willing to obtain material comfort by the 
sacrifice of real Uberty ; he beUeves that, if the 
choice has to be made, it is better to be poor and 
free than to be well-off on the condition of being 
subjected to endless regulation. If he hesitates 
about Socialist schemes for the reorganisation of 
Society, it is not because he has a doctrinaire objec- 
tion to State action, but mainly because he fears 
the invasion of every man's liberty which might 
result from the elaborate organisation of State 
control exercised, as it only could be exercised, 
through an army of officials. 

First and foremost, then, the Liberal's concern is 
to preserve and to increase human liberty ; and 
the question with which he tests every project of 
reform is, Does this project promise to increase 
the real Uberty of all citizens, and, especially, does 
it give reasonable freedom of thought and action 
to those exceptional, adventurous, original men who 
are always the pioneers of human progress ? 

(2) The main reason why Liberalism lays so much 
stress upon liberty is that it attaches an infinite 
value to human personality, both as something 
sacred in itself, and as the source of energy, and 
the most potent factor in progress. It is the 
Liberal's beUef that the state of society which gives 


the freest play to individuality, and which allows 
and encourages men to make the most and the 
best of themselves, is likely to lead to the noblest 
results. He believes that all individualities are 
valuable, and have an equal right to self-expression. 
He distrusts uniformity, and values variety for its 
own sake — variety of individual character and 
interest, variety of industrial method and experi- 
ment, variety of religious belief, variety of national 
types. He holds that no more fatal charge can 
be brought against a state of society than that it 
starves or stunts individuality. It is mainly because 
he feels that our existing order is in a large degree 
open to this criticism that he is discontented with 
it. For that reason he is highly distrustful of 
schemes of reform which seem Hkely to place grave 
hindrances in the way of the free working of indi- 
vidual energy, or to impose upon all men a uni- 
formity of life and conduct. 

The ultimate end of our co-operation in Society is 
not the production of wealth, but the cultivation 
of the highest types of manhood. The noblest 
types of manhood thrive only in an atmosphere of 
liberty. They require the freest outlets for their 
energy, they need an infinite variety of training and 
of opportunity ; they are apt to be stunted by the 
best devised system of regulation conceived in the 
interests of the mass of average men ; and so long 
as it is ensured that the expression of one man's 
individuality is not permitted to starve the expres- 
sion of his neighbour's, no one school of thought 
is justified in endeavouring, by the power of the 
State, to crush out particular forms of human energy 


because it disapproves of them, or to decree that 
only certain kinds of individuality are deserving 
of respect or tolerance. That, at any rate, is the 
Liberal attitude. Just as, in the old days, it con- 
demned religious intolerance, so it condemns what 
may be called economic intolerance. There is 
need, in a healthy society, for the lilies of the field 
as well as for wheat and turnips, and no man has 
a right to say that either is more valuable than the 
other — so long as the lihes do not choke the wheat 
or starve it of its needful nutriment. 

When, therefore, the Liberal criticises existing 
systems, or considers any scheme for their improve- 
ment, he is bound to ask himself, How far does 
this system or this scheme provide opportunities 
for the free development and expression of various 
individualities ? How far does it release and employ 
the potent force of individual energy, for its own 
advantage and that of the community ? 

(3) Because it values Liberty and Individuality 
80 highly. Liberalism has always been distrustful of 
any very great enlargement of the functions of the 
State. It values Law and the power of the State 
chiefly as safeguards for Liberty — chiefly because 
they are the best, or the only, means of protecting 
the liberty of the individual against the misuse of 
power, by whomsoever exercised and whencesoever 
derived : the power of monarchs, the power of 
privileged classes, the power of employers, the 
power of officials, the power of organisations, the 
power of money. But the more functions the State 
assumes, the less likely and the less able it will be 
to perform its duty of guarding against the misuse 


of these powers by the agents to whom it entrusts 
them. Every function which the State assumes 
must be performed by individuals on its behalf ; 
these men, like any men into whose hand power 
falls, are tempted to misuse their power ; and the 
State is less likely to be watchful over its own 
agents than over others. The more elaborate and 
the more complex the functions which it assumes, 
the more difficult it will be for the State to exercise 
proper control. Hence every increase in the func- 
tions directly assumed by the State is apt to involve 
a decrease in its efficiency as the watchdog on behalf 
of liberty. 

Liberalism has always disliked the use of compul- 
sion beyond what is necessary, because it believes 
that the best results are attained by the voluntary 
action and the voluntary co-operation of free men. 
It recognises that, in a large degree, and for many 
purposes, compulsion is necessary ; but it is neces- 
sary and justifiable only in so far as it is used for 
the maintenance or enlargement of real liberty. 
Even when it is exercised by the majority in the 
community over the minority, and embodied in the 
form of law, the Liberal dislikes compulsion for any 
other purpose than the safeguarding of liberty. 
But he has always by instinct set his face against 
the use of compulsion by a single element in the 
community. Whether it be a despot, or a priest- 
hood, or a landed aristocracy, or the money power, 
or a military caste, or a group of trade unions, 
Liberalism has always resented and resisted, and 
will always resent and resist, any attempt on the 
part of a single element or interest in the com* 


munity which has power in its hands to use this 
power as a means of imposing its will tyrannically 
upon the rest of the community. Liberalism is the 
sworn foe of dictatorship, whoever may claim it — 
of the Dictatorship of a proletariat and the Dictator- 
ship of a plutocracy alike. It is only by constant 
and strenuous watchfulness that Liberty can be 
protected against the danger of dictatorship, and 
the danger is always appearing in new forms, as 
the changing conditions of human life place power, 
of one sort or another, in new hands. 

(4) Its belief in liberty and individuality, and its 
hatred of arbitrary power or dictatorship exercised 
by any group or element over the rest of the com- 
munity, have led Liberalism to advocate the widest 
possible diffusion of a share in the control of common 
affairs ; and the establishment of political democracy 
in all the most advanced countries during the course 
of the last centiu-y has been almost wholly the work 
of Liberalism and has constituted its greatest 
achievement. It was long resisted by the older 
privileged classes, by the possessors of irresponsible 
power ; it is now impugned and attacked by the 
more extreme SociaUsts, who desire to substitute 
for democracy a new class ascendancy, that of the 

The inteUigent Liberal does not believe in demo- 
cracy because he thinks that a majority is always 
right ; on the contrary he recognises that in an 
ill-educated community the majority is likely to 
be more often wrong than right when it has to 
decide upon complex and difficult subjects. He 
believes in democracy because he holds that to have 


a share in the responsibility for determining the 
destinies of himself and his fellows is a necessary- 
element in the healthy development of a free man's 
individuality, and because he holds that the process 
of argument and discussion which must perpetually 
go on in a democratic society is a better means of 
settling vexed questions than the high-handed use 
of power. He beheves in persuasion rather than 
in force ; and holds that any body which uses force 
against the community in order to get its own way, 
whether it be a military oligarchy or a trade union, 
is false to its duty to the community. 

Nor does the inteUigent Liberal think that a body 
of average men, such as a democratic electorate is 
always likely to choose, will be really competent 
to conduct with wisdom difficult and comphcated 
affairs. The thing it is really competent to do is 
to reflect the mind and will of the community as a 
whole, and to ensure that the government of the 
community is carried on in accord with this mind 
and will. Long ago a great Liberal, John Stuart 
Mill, defined certain principles of representative 
government ; and on one point, at any rate, what 
he wrote is as true to-day as in 1861, and is even 
more important to-day. The true function of a 
representative body, as JMill pointed out, is not to 
undertake the direct management of complicated 
affairs, to devise the details of legislation, to work 
out the precise methods of taxation, or to control 
and direct in detail the conduct of exacting adminis- 
trative business. No representative body is really 
competent for such work. Its true function is to 
see that the right men are selected to carry out these 


important and difficult labours, to criticise, approve, 
or condemn their action, and to make sure by 
constant watchfulness that they do not abuse the 
powers vested in them. 

If to-day representative institutions are not 
working in a whoUy satisfactory way, and are losing 
in some measure the confidence of those for whose 
interests they are responsible, a large part of the 
reason is that they are trying to do work for which, 
by their very nature, they are ill fitted ; and in 
undertaking a multitude of new functions are 
largely neglecting their primary duty of serving as 
the watchdogs and defenders of Hberty. The more 
their functions are enlarged, the less efficiently 
their work will be done. 

(5) A LiberaHsm that is worthy of its name is, 
then, concerned to secure and protect liberty for all 
members of the community, to foster the develop- 
ment of all individuahties by giving them equality 
of opportunity, to guard against the misuse of power 
by any particular class or interest in the community 
and to ensure that the interest of the community 
as a whole is always predominant. Liberalism is 
false to its fundamental ideas if it allows itself 
to be identified with any class or any special interest. 
It is, or ought to be, the enemy of all purely class 
interests, and of all sharply -marked distinctions of 
class or caste. It desires to destroy, not to foster, 
class-consciousness ; and to substitute for it com- 
munity consciousness and the community spirit. And 
here, perhaps, lies the chief need for a strengthening 
of the Liberal spirit to-day, when on both sides 
the doctrines of class conflict are being preached. 



Inspired by their belief in Liberty, by their 
desire to release individuality from the restraints 
and shackles which limited its free development, 
and by their detestation of the tyranny of class 
and of the abuse of Power, the Liberals of the 
nineteenth century achieved great things ; and-we, 
who-in^erit- the-resiitt§~of'their ' laboxirs7-T)ught not 
to undervalue- them. They swept away legally 
established privileges of class and sect. They 
organised political democracy. They secured free- 
dom of trade, freedom of speech, freedom of associa- 
tion for all lawful purposes. They endowed the 
daughter-nations of the British stock with political 
liberties on the amplest scale hitherto known in the 
world. They helped to win for trade unions the 
means of obtaining for their members, by common 
action, better conditions of life and work. And 
these were very great achievements. 

But there were two things which the older 
Liberals overlooked. In their zeal for liberty and 
their belief in the potency of individuaUty they 
failed to realise that the mere removal of restric- 
tions was not enough for the establishment of real 
liberty. The mere removal of restrictions upon the 
freedom of action of individuals meant that the 



weak were left too much at the mercy of the strong. 
It meant that the liberty of many men became in 
fact unreal, and that the individuality of thousands 
was apt to be sacrificed to the dominating indi- 
viduality of the few. In the economic sphere it 
meant that the rich were left too free to employ 
the power that their riches gave them over the 
unprotected poor. In too great a measure, nine- 
teenth century Liberalism forgot that Liberty itself 
demands that there shall be checks upon any such 
misuse of power. And although the freedom which 
the Liberal system allowed to trade unions and other 
associations for common action provided some 
check on the abuse of the power of wealth, it was 
not a wholly satisfactory check ; and it had the 
unhealthy result that it encouraged the acceptance 
of conflict instead of co-operation as the natural 
relationship between the organisers of industry and 
the workpeople. 

The second thing which the older Liberals over- 
looked was that in their distrust of State inter- 
ference, of compulsion, and of regulation, they 
failed to realise that in one aspect the State ought 
to be regarded as a great partnership for good living. 
Rightly valuing individuality, they too often forgot 
the community ; not realising that it is only in a 
healthy community that any high type of indi- 
viduality can thrive, and that the service of the 
undying community is the noblest way in which 
individuality can express itself. Many of them 
lived lives of the noblest and most self-denying 
public service. But the forms in which they 
expressed the fundamental ideas of LiberaUsm made 


these ideas appear to justify a very narrow and 
selfish view of a man's duty to his fellows ; and 
for a time Liberalism was identified with the barren 
creed of IndividuaUsm : each man for himself, a 
free field and no favour, and the devil take the 

This did not mean that the essential ideals of 
Liberahsm, its belief in Liberty and in Individuahty, 
its hatred of irresponsibly used power, and its 
confidence in democracy, were proved to be 
fallacious. It meant only that these ideals had 
been too narrowly conceived. Liberty is not 
merely a negative thing, a mere absence of restraints ; 
it is a positive thing. No man is really free until 
he possesses, in a sufficient degree, the material 
basis of liberty, so that he is free from the chains 
of constant anxiety about the hvehhood of himself 
and his family. No man can really make the most 
of his own individuality so long as he is engrossed 
wholly in the drudgery of livelihood. No man is 
fuUy master of himself unless he has been trained 
to use his own powers of intellect, and unless he 
has learnt to conquer his lower self by subordinating 
his own wiU to the Grood WiU, which rejoices in the 
service of the community. To estabhsh in a nation 
liberty and individuality in this generous sense is 
no easy matter, but a vast constructive labour. The 
older Liberalism, while it achieved great things by 
sweeping away privileges and restraints, took too 
modest a view of what the service of Liberty 

From the first there were protests against this 
unduly narrow view of the meaning of Liberty ; 


and in the period of Liberal ascendancy there were 
Factory Acts and Truck Acts, and Housing Acts and 
Education Acts, and so forth, the purpose of which 
was to protect the weak against the strong and to 
make liberty more real. By the beginning of the 
twentieth century Liberalism had largely shaken 
off its identification with mere Individualism ; and 
in the great Liberal Ministry which was at work 
during the ten years before the war, very marked 
advances were made in the adoption of the view 
that it is the duty of the State to secure for aU its 
citizens such conditions of life as wiU make real 
Liberty possible. Old Age Pensions, Trade Boards 
in sweated industries, insurance against unemploy- 
ment and sickness, and a multitude of other pro- 
visions marked the emergence of a new type of 
Liberalism and of a more generous conception of 
what Liberty means, and of what is needed for the 
due cultivation of IndividuaUty. 

Meanwhile, however, the reaction against a 
barren Individuahsm had taken another form. The 
doctrines of Socialism were gradually gaining 
adherents during the second half of the nineteenth 
century, and during the early years of the twentieth 
they were winning the allegiance of many of the 
most active among the leaders of organised labour 
in Britain. The strength of the Socialist creed was 
that it did very definitely assert the claim of the 
community as a whole to the service of all its 
members ; and it was this which enabled it to win 
a strong hold over many generous minds. But it 
offered a rather crude method of overcoming the 
evils of the social order. It promised a short cut 


to the millennium by the simple device of taking 
under the control of the State all the machinery of 
production. It thus exaggerated the functions of 
the State as seriously as the older Liberalism 
minimised them. 

But then the war came ; and under the pressure 
of its necessities the State had to assume such 
immense powers of control over the most important 
industries of the country that we were given in 
some degree a practical demonstration of how the 
Socialist State would work. It was not, perhaps, 
an altogether fair demonstration, though it had 
the great advantage that everybody was eager to 
do his best loyally, and to suppress criticism in a 
time of national crisis. The result was that almost 
everybody was impressed by the wastefulness, 
confusion, and irritating formalism which seemed to 
follow from State control. Everybody also felt 
that Liberty was seriously impaired by the often 
irresponsible conduct of Grovemment departments, 
which could not be checked or guarded against 
because these departments wielded the powers of 
the State. The State had almost abdicated its 
function of guarding against the misuse of power ; 
and Parliament found that the functions imposed 
upon it were too immense to be capable of being 
adequately performed. Hence Parliament itself fell 
into disrepute. 

This taste of the actual working of State control 
brought about another reaction. In large sections 
of the Labour world it led to the growth of a move- 
ment towards Syndicalism or towards that modified 
form of Syndicalism which is called Guild Socialism. 


We shall have more to say about this theory, as well 
as about Socialism, in later pages of this book. In 
the meanwhile it is perhaps enough to say that 
these two doctrines are fundamentally inconsistent 
with one another. The Labour Party has in some 
degree adopted both, and wavers between them. 
It has, however, won the allegiance of many thou- 
sands of earnest and honest men, just because it is 
plainly striving after an ideal, even though it 
cannot very clearly define how the ideal is to be 

But a vague ideal, if it does not rest upon clear 
and sound thinking, may be a very dangerous thing. 
There are many who beUeve that the Labour l^artj, 
in spite of the loftiness of its aim, is unknowingly 
worshipping false gods. And under these circum- 
stances, if Liberalism is to be recognised as offering 
a safer clue in the perplexities of our time, it has 
become more than ever necessary that there should 
be a clear redefinition of its principles and aims, 
and of their bearing upon the problems of to-day. 




The most striking feature of our time, and in 
many ways its most hopeful feature, is the existence 
of a widespread belief, not by any means limited to 
one class or to one school of thought, that there is 
something radically wrong with the social order in 
which we live, and that it needs to be readjusted. 
Men of all classes feel that the system is in many 
ways unjust, that it encourages and rewards the 
wrong kind of qualities, that it denies to multitudes 
of men and women the chance of making the best 
of themselves and of rendering to the community 
the best service of which they are capable, that it 
puts men of good will, in all classes, in a false relation 
to one another. 

This feeling, far more than any actual hardship or 
oppression, is at the bottom of the unrest from 
which we are suffering ; and until some cure has 
been found for it — until men can feel that we are 
working towards a better state of things, and can 
have some confidence and behef in the aims we 
have set before ourselves — the unrest will continue. 
Not only that, but it will be played upon by the 
wild wreckers who rejoice in the prospect of smashing 
up organised society, having no notion of the 



appalling misery and degradation which must 
result from such action. 

What prospect have we in Britain to-day of a 
satisfactory solution of this immense and inspiring 
problem ? There are three organised groups of 
public men who are competing for the votes and 
confidence of the electors. Let us see what hopes 
they hold forth. 

On the one hand there is the party, or the group 
of parties, now in power — a strange combination of 
once irreconcilable opponents, who in the natm^e 
of things have no clearly defined principles in 
common, and whose apparent aim is merely to tide 
over the period of unrest caused by the war, and 
to let things settle down. They are headed by a 
man of genius and charm, a brilliant improviser, a 
man of generous emotions but guided by no clearly 
thought out principles. He has unrivalled skill in 
steering through troubled waters ; but he has no 
map of the course, and no knowledge of the currents 
and shoals ahead ; he does not clearly know whither 
he is steering. His followers include many honest 
and bewildered men, who are doing their best, 
often at cross-purposes with one another, to find 
solutions for this problem or that ; but they too 
have no clear idea of the kind of society they wish 
to shape, or, if they have, they dare not define it 
because they know that most of their colleagues 
would repudiate it. The bulk of the coalition host 
consists of the representatives of vested interests, of 
people who would start back in panic from any bold 
and far-reaching plan of reconstruction, and who 
want and hope for nothing more than that the 

D 2 


minimum concessions should be made, on this side 
or that, to keep things going until we can get back 
to something as like the state of things before the 
war as may be. That is not the desire of the nation. 
And from such guidance no acceptable solution is 
likely to come. What has come from it is confusion, 
immense waste of money, constantly changing and 
illogical devices, and a steady diminution of the 
respect felt by the nation for its machinery of 
government — a progressive undermining of confi- 
dence in our institutions which is profoundly 

On the other hand there is the Labour Party, 
full of a new confidence — outwardly, at any rate. 
Its strength is that it asserts the need for a new 
order, and proclaims that it laiows how to arrive 
at it. And on the strength of this assertion it has 
won many adherents among thinking men of all 
classes, who long to feel that they are working for 
a great cause and a great hope. But the Labour 
Party's actual programme is very vague and elusive. 
And necessarily so ; because its prophets cannot 
agree upon fundamentals. 

Taken as a whole, the Labour Party is inspired 
by a genuine zeal for a better order of things. Its 
members desire fair play and a " square deal " for 
all men. Most of them in their hearts believe 
passionately in liberty and in individuality, and 
hate the idea of the exercise of tyranny by any 
group or class, even their own, or by any body of 
officials. They are, in essence, Liberals ; and only 
do not call themselves Liberals, firstly, because they 
think that the Liberal party is identified with and 


financed by the class of industrial employers, and 
looks at public affairs through their eyes ; and 
secondly because no clear and convincing definition 
of the Liberal attitude, or of the way in which it 
can lead us towards a happier order, has ever been 
put before them. Many of them have adopted the 
formulae of SociaUsm or of Syndicalism without 
very close examination, simply because these 
formulae seem to afford methods of reaching the 
better order which they desire ; and also because 
they are advocated with force and vigour by some 
very able men who have reahsed (as Liberals have 
not done) the immense potency of ideas. 

Some of these leaders advocate State Socialism, 
the control of the whole machinery of production 
by the State through an army of officials ; a solu- 
tion which, in the view of many sane critics, must 
have the effects, first of gravely impairing all men's 
liberty, secondly of greatly reducing the oppor- 
tunities open to individual energy, and thirdly of 
finally breaking the back of our national system of 
government. Others advocate the new gospel of 
Syndicalism or Guild Socialism, which would reduce 
the power of the State to a nullity, and create a 
series of vast monopolist trusts in all the great 
industries, which would have the whole population 
at their mercy ; but these prophets have not yet 
made up their minds as to how this scheme is to 
be worked, and quarrel with one another almost as 
violently as they quarrel with the State Socialists. 

These two gospels are utterly incompatible and 
irreconcilable. But many members of the Labour 
Party have not realised their inconsistency. The 


Labour Party as a whole, therefore, lacks any clear 
and tenable body of agreed principles. This state 
of things may continue while the party enjoys the 
irresponsibility of opposition, and is not called upon 
to show in practice how its vague and conflicting 
ideals are to be realised. But it holds out little 
prospect of a helpful solution. 

Moreover the Labour Party is, by its very name, 
too much labelled as the party of a class, not as a 
national party. And it finds it very difficult to 
overcome this disability ; for, though it has 
recently attracted many idealists who are not 
manual workers, it is actually controlled, because 
it is mainly financed, by the Trade Unions ; and 
the new recruits find themselves unable to influence 
its policy. Finally the party is in a large degree 
controlled by its extremist members, who are allowed 
an influence altogether out of proportion to their 
numbers both in the political party and in the 
Trade Unions. The policy of the extremists is 
not national reconstruction, but class-conflict ; not 
democracy, but the dictatorship of the proletariat. 
For all these reasons, the Labour Party in its present 
condition offers little hope to many men of good will 
who desire to work for a poUcy of national re- 
construction and reconcihation ; it is, indeed, losing 
the confidence of many of its recent recruits, who 
joined it because it seemed to offer a prospect of 

Between these two groups stands the Liberal 
Party, a feeble remnant broken by the war and by 
the political manoeuvres which followed it, and 
largely exhausted by the strain of ten years of 


strenuous tenure of power. Yet, feeble as it is, it 
is the spokesman of a great tradition, the exponent 
of ideas which have inspired zeal and hope in the 
past, and which are capable, if intelligently re- 
defined, of offering a reasonable and tenable solution 
of our problems in the future. 

It is the purpose of this book to show that the 
essential ideas of Liberahsm, as we have tried to 
define them above, if they be interpreted in the 
more generous sense which was already beginning 
to be accepted before the war, can afford to us the 
prospect of a healthier and happier society, to the 
creation of which we all may contribute ; can give 
us an ideal to work towards and principles which 
will guide us both in framing and in criticising 
schemes of reform. 

Liberalism proclaims that it is the duty of the 
community to secure for all its members real liberty. 
It recognises that real hberty has not yet been 
secured for great masses of people in our society. 
For real liberty must rest upon a material basis ; 
it cannot be enjoyed by any man unless he is sure 
of an adequate liveUhood in return for honest 
work, a reasonable security against the miseries of 
unemployment, sufficient leisure after his work to 
enable him to enjoy the good things of life, protec- 
tion against tyranny from any quarter, and the 
sense that he is not a mere " hand," but, if the phrase 
may be employed, a citizen of the industry to which 
he gives his time and strength, and a servant of 
the community. 

Liberalism proclaims that it is the duty of the 
community to secure for all its members the chance 


of making the most and the best of their own indi- 
viduality ; and it asserts that the fostering of 
individual character and energy is at once the 
primary object of a healthy society, and the surest 
means towards its progress and advancement. It 
recognises that, as things are, the mass of our people 
have too little chance of developing their own 
individuality and making the most of their powers ; 
and that the community is indescribably weakened 
by this fact. The achievement of this end, which 
is one of the primary aims of Liberalism, demands 
not only Liberty in the large sense defined in the 
last paragraph ; it demands also that every man 
shall have the fullest opportunity of training for 
his powers, both in childhood and in later life ; it 
demands that, in the industrial world, the highest 
careers shall be genuinely open to talent, in such 
a way that no man may feel that his own advance- 
ment is won at the expense of his comrades ; it 
demands that men of ability and originahty shall 
have real opportunities of carrying their ideas into 
effect, even when they do not win official approval ; 
it demands that a man shall have a real freedom 
of choice as to the kind of work he will do, so far 
as his powers justify. 

Liberalism recognises that in all honest work 
there are two aspects : the pursuit of individual 
benefit, and the rendering of service to the com- 
munity. In nearly all occupations these two motives 
for doing good work are not incompatible, but can 
mutually reinforce one another ; and in a healthy 
society every man should be consciously actuated 
by both motives. We are bound to recognise 
that, in the present state of things, most men are 


tempted to think mainly of individual benefit, and 
very little, if at aU, of service to the community. 
Liberahsm therefore must desire so to change the 
organisation of industry as to strengthen the motive 
of service. Some people speak of " substituting " 
the motive of service for the motive of private 
advantage. That is an exaggerated and misleading 
way of putting the matter. The pursuit of private 
advantage is not only natural and legitimate, it is 
a means of cultivating individuahty ; and it only 
becomes harmful when it is at the expense of other 
individualities and of the community. What we 
have to do is to bring into being a state of things 
which will continually remind each individual that 
he must serve the community as weU as himself, 
and that only so will he make the best of himself. 
One essential means of creating such a state of 
things is to ensure, so far as may be, that the 
rewards which a man receives shall be in some 
rough proportion to the services he renders ; that 
the enrichment of his individuahty which the reward 
of his work lays open to him shall be proportionate 
to the sacrifice of his individuahty which he makes 
in carrying on his work. This is, indeed, an essential 
Liberal principle ; and it is obvious that in the 
existing order it is very far from being satisfied. 
It is, indeed, impossible to place an exact value 
upon different forms of service. Who would under- 
take to compare, in terms of cash, the relative value 
of a second-rate noveHst and a good scavenger ? 
For that reason the principle that reward should 
be proportionate to service cannot be laid down as 
a programme of action, and those who so define it 
are unconsciously deceiving their readers. But at 


least it is possible to recognise that some forms of 
service or disservice are grotesquely overpaid, and 
that others are gravely underpaid ; and to hold the 
rectification of those grosser inequalities in view 
both in schemes of taxation and in industrial 

Liberalism believes that for the purpose of 
realising the aims defined in the foregoing para- 
graphs the use of the power of the State is in- 
dispensable ; and while still adhering to its ancient 
belief that compulsion should only be resorted to 
when absolutely necessary, it holds that compulsion 
for such purposes is altogether desirable, inasmuch 
as it is used for the purpose of enlarging and main- 
taining liberty, and giving a fuUer outlet to indi- 
viduality. It is the rightful function of the State 
to safeguard liberty. But, just for that reason, it 
is desirable that the State should in the main confine 
itself to defining the conditions under which various 
activities should be carried on. Even if it finds 
that in any industry the demands above defined 
cannot be satisfied under its existing organisation, 
it should rather prescribe a new way of conducting 
it than undertake to conduct it itself ; the general 
principle being that the function of the State is to 
supervise, regulate, and judge, and to afford protec- 
tion against the abuses of power, rather than to 
undertake the direct management of a variety of 
activities ; and that its main duty of regulation 
and protection is likely to be neglected or in- 
adequately performed in the case of activities con- 
ducted by its own agents. 

Liberalism holds that the State which exercises 


the vitally important powers thus defined ought to 
be ultimately controlled by the free will of the 
whole community. It recognises that the existing 
machinery for making this will effective is in various 
ways unsatisfactory and stands in need of reform. 
But it will not, on that or on any ground, consent 
to any reduction or undermining of the ultimate 
supreme power of the whole people such as is 
advocated by one wing of the Labour Party, any 
more than it will assent to the overburdening of 
the State with a multitude of new functions, as is 
advocated by another wing of the Labour Party. 

Liberalism holds that the expenditure of the 
State should be cut down to the minimum necessary 
for performing its essential functions, and that the 
extravagant multiplication of costly offices recently 
effected should be brought to an end by a great 
simpUfication of the machinery of central govern- 
ment. It holds that a reform of our system of 
taxation is necessary, and a bold treatment of the 
national debt. But this theme will best be dis- 
cussed later in this essay. Here we are concerned 
only to indicate the broad fines upon which the 
central ideas of Liberafism would suggest that the 
problem of industrial reconstruction should be 

But these generafisations are still too vague. It 
is necessary to get to closer grips with our subject ; 
and we must next attempt to answer the question, 
What has Liberafism to say on certain criticisms of 
the existing social order now widely prevalent, and 
how would it deal with the problems which they 
indicate ? 



It is all very well to talk airily about securing the 
material basis of liberty for all citizens. But no 
one has a right to make vague and large promises 
without being clear that the means of fulfilling them 
are available. Whatever the advocates of other 
political creeds may do, the advocate of a Liberal 
solution must avoid this form of dishonesty. It is 
impossible to divide among the community more wealth 
than the community as a ivhole produces. If it does 
not produce enough, and cannot be induced to 
produce more, all such promises must remain vague 
ideals for the future. 

In the year before the war, the value of the total 
wealth produced or earned by the British people 
was estimated at about £2,000,000,000 per annum 
at the then value of money. Out of that there had 
to be somehow set aside about £400,000,000 * to 
form new capital and keep the machinery of produc- 
tion going : this would be the case under any 
system. The remainder, available for distribution, 

* This includes foreign investments ; but as these mainly con- 
sisted of British goods paid for by annual interest instead of by 
a lump sum, they woie an essential element in the development 
of production. 



would have been enough to provide, if divided out 
equally, about 135. a week per head of the popula- 
tion, or 655. a week for a family of five ; and out of 
that all the taxes, etc., had still to be taken. Of 
course it was not divided out equally ; very much 
the reverse ; it was divided with gross inequaUty. 
But the main point is that, even if it had been 
equally divided, the national product of wealth was 
quite insufficient to do all that zealous reformers, of 
whatever school of thought, desire. 

No change in the distribution of wealth, however 
drastic, could affect this conclusion. The only 
possibility of a real improvement in the provision 
of material well-being as the foundation of real 
liberty is to be found in a very great increase in 
the amount of wealth produced by the community. 
Yet it is notorious that we are producing less real 
wealth than we produced in 1914. 

What is the explanation ? We are told that the 
main explanation is dissatisfaction with the existing 
economic system. Men are not working their 
best, because they believe that a large proportion 
of the wealth they help to produce goes to those who 
have done little or nothing to earn it. Moreover, 
it is added, things will become worse instead of 
better until the workers are assured that justice is 
being done, or at any rate is being systematically 
pursued. And no doubt there is a great deal of 
truth in this. Confidence in the fairness of the 
existing economic system has been undermined. 
Confidence must be estabUshed before any economic 
system will work well. 

Ask almost any working-class leader what is 


wrong ; and he will tell you that it is the whole 
" capitaUst system " that is wrong. " CapitaUsm," 
he will say, " must be eradicated, if confidence is to 
be re-established." 

Under these conditions LiberaUsm, like any other 
political creed, must define quite clearly what is 
its attitude towards " Capitalism " if its poUcy is to 
be understood. This would be easier if it were 
quite certain what exactly is meant by the term 
" Capitalism," which is used rather vaguely and 

We all know what " Capital " is : it is wealth 
withheld from consumption, mainly in order that 
it may be used for the production of further wealth, 
as the farmer holds back part of his crop from the 
market in order that he may use it for seed. Every 
man who has bought a tool out of his savings has 
to that extent created capital. We are all further 
agreed, whatever our poUtical opinions, that capital 
in this sense is indispensable for the conduct of 
industry. Roughly, in a complex society like ours, 
we have to set aside year by year about one-fifth of 
aU the wealth we create for the purpose of keeping 
our industries going and expanding them. If we 
failed to do so we should soon be faced by ruin ; 
just as the whole world would die of starvation if 
all the farmers used up all their crops instead of 
keeping back a part for seed. In spite of its many 
defects, the existing economic order has this un- 
questionable merit, that it has somehow secured 
the setting apart, year by year, of the requisite 
amount of capital. And no system will succeed 
unless it somehow succeeds in doing this. 


But we are all agreed as to the necessity of Capital. 
It is not this that the critics of " the Capitalist 
system " attack. What is it ? 

Many of them say that what is objectionable is 
the private OAvnership of capital ; they urge that 
all capital should be owned by the State. And they 
further protest against the payment to the owners 
of capital of a substantial share of the product of 
industry, in the form of interest. 

Now, as things stand, the new capital which we 
annually require is partly made by the creation of 
reserves out of the profits of trading-companies, 
whose shareholders forgo for this purpose the 
immediate distribution of part of the profits ; and 
we shall have more to say about this form of capital 
later. But the bulk of new capital, and especially 
that which finances new enterprises, is made by 
the savings of individuals, who do not spend their 
whole income, but lend the unspent balance to 
industry. It is true that a large proportion of the 
capital annually created — though not so large a 
proportion, by any means, as many people think — 
comes from men who have incomes so large that 
they cannot easily spend them aU, and who there- 
fore scarcely deserve to be praised for " thrift " when 
they use the unspent balance for the further increase 
of their riches. It is true, also, that this is an 
unhealthy state of things ; though we have to 
remember that it is largely the existence of this 
very rich class which has ensured the setting apart, 
year by year, of a sufficient amount of capital to 
keep our industries going. 

But even the very rich, and still more the in- 


numerable people of modest means who annually 
save a share of their income for investment, render 
a very great service to the community as well as to 
themselves M^hen they withhold wealth from con- 
sumption in order that it may be used as capital. 
They would not save, or at all events they would 
not lend their savings, unless they were assured 
of a reward for doing so. The reward takes the 
form of interest. And if private ownership of 
capital and the earning of interest are to be pro- 
hibited, that means that private saving must be 
prohibited — or that every man's savings must be 
confiscated as fast as he makes them. Strictly 
speaking it should mean that nol)ody would be 
allowed to own his own tools ; for all tools, as we 
have seen, are capital. 

If private ownership of capital is to be prohibited, 
some other means of securing the necessary capital 
must be found. Some men, thinking only of the 
capital sunk in railways and mills and so forth, 
and forgetting that these are always wearing out, 
and having to be renewed, imagine that it would 
be enough if the State were to confiscate all existing 
capital. The Bolsheviks tried this device in Russia. 
The result was that nobody created new capital 
by saving, since it was obviously futile to do so ; 
and in the absence of new capital the whole industrial 
system broke down, with the consequence of wide- 
spread ruin and starvation, which could only be 
partially remedied by forced labour or slavery. 

Some think that the State ought to be able to 
get all the capital it needs by simply requiring that 
a percentage of the product of every industry should 


be set apart for this purpose. This would, of course, 
amount to compulsory saving all round. There 
would be no individual choice or individual effort 
in it. It is assumed that the workers in every 
industry would accept this arrangement, and forgo 
the increase in their wages which they might other- 
wise have obtained. But we have seen how the 
miners, when they realised that the almost banki'upt 
State was making a profit out of the mines, demanded 
that this profit should be distributed. It is not 
impossible that the same thing might happen again. 
In truth, the majority of Socialists recognise that 
even in the Socialist State capital would have to 
be drawn largely from private savings, on which 
interest would have to be paid ; and that means 
private ownership of capital. 

What is the attitude of Liberalism on the private 
ownership of capital ? L'^nquestionably it is that 
individual thrift is not only the one sure mode of 
providing capital, but the best ; and there will be 
no individual thrift unless a man is allowed to own 
what he saves. The Liberal would also hold that 
the exercise of thrift, and of inteUigence and atten- 
tion in disposing of the capital created by thrift, is 
one of the most valuable and useful ways of express- 
ing individuality, of stimulating individual energy, 
and of diffusing interest in and knowledge of the 
industrial activity of the country. Far from agreeing 
to the abolition of the private ownnership of capital, 
the Liberal would desire to extend it more widely ; 
and in the ideal Liberal State everybody would 
have the chance of creating and o^vaiing capital 
by thrift, while at the same time everybody would 



earn the bulk of his income by direct work of service 
to the community. 

This is not to say that the ownership of capital as 
things now are is satisfactory from the Liberal 
point of view. Very much the reverse. Though 
the number of those who own a little capital is in 
England immensely larger than is generally realised, 
it is still true that far too great a proportion of the 
nation's capital is owned by a small number of 
people. These great accumulations of capital are 
dangerous, because they place too much power in 
the hands of the holders. But the true cure for 
this is, not to aboUsh the private ownership of 
capital (which is, in fact, impossible), but to diffuse 
it more widely. 

There are many ways in which this can be for- 
warded ; and these are entirely in accord with the 
principles of Liberalism. It is possible to forbid or 
to hamper some of the more objectionable ways of 
accumulating great masses of capital. It is possible 
to restrict the amount of capital that may be handed 
down by inheritance from generation to generation. 
It is possible to help the break-up of the great 
accumulations by means of heavy death duties and 
in other ways, and this is a long -accepted part of 
Liberal policy : the Death Duties are, as we know 
them, a Liberal invention. It is possible to encourage 
the habit of saving and investment among the mass 
of the people by such means as were used to attract 
the small investor during the war, and by making 
banking faciUties (of a more convenient kind than 
the Post Office Savings Bank provides) available for 
people of modest means, and perhaps also by 


insisting that industrial companies shall offer 
facilities to the smaU investor, especially to the 
workpeople in the industry. 

The more the capital required for the nation's 
activities is provided by the thrift of hard-working 
folk, and the less it is provided by the giants of 
finance, the better it will be for the nation. Indeed, 
unless the hard-working people learn to create 
capital by saving on a large scale, the reduction of 
large fortunes may actually hinder the development 
of industry by depriving it of the source from which 
it now draws much of the necessary capital. But 
in actual practice very widespread investment will 
only become possible when the mass of the people 
have incomes sufficient to make saving possible ; 
and that wiU only be when the nation is producing 
far more wealth. 

So far as concerns the ownership of capital, then, 
Liberal policy must aim at distributing it as widely 
as possible, and at using every means of discouraging 
very great accumulations of capital in a few hands. 
This is the true path to economic stability and 
economic health. 

If the term " Capitalism " means the creation of 
capital by private thrift, and its ownership by those 
whose thrift has created it, LiberaUsm must accept 
and defend CapitaUsm, but at the same time must 
aim at removing the evils of the present system by 
reducing great accumulations of capital and by 
doing everything that is possible to bring about a 
very wide diffusion of capital. 

E 2 



But there is another sense in which the word 
" CapitaUsm " is used by those who criticise the 
existing order. 

In this significance " Capitahsm " is condemned 
not because it means private ownership of capital, 
but because the owners of the capital invested in 
industry are regarded as claiming a position of 
predominance out of proportion to the value of the 
services which they render and in itself inherently 
unjust. They are, in fact, trea,ted as owners of the 
industry, and this position of ownership is shown 
in three ways : {a) by the fact that all the residual 
profits, after paying wages and salaries for the 
labour of hand and brtiin, are regarded as belonging 
to the owners of the capital, however large these 
profits may be ; (6) by the fact that the owners of 
the capital control the management of the industry 
by appointing its directors, who conduct its affairs 
primarily with a view to earning the maximum 
profit for the owners ; and (c) by the fact that 
the owners of the capital can, when they see fit, 
wind up the business and sell its plant and goodwill 
without regard to any other consideration than 
their own financial advantage. 



It must be recognised that this does in theory, 
and largely in practice, represent the principles 
and methods on which the greater part of industry, 
not only in England but throughout the world, is 
to-day carried on. This is the system which is 
known as " CapitaUsm," and which is to-day the 
object of the most acrimonious criticism. It is 
opposed on behalf of Labour, which claims that it 
has a greater concern, and a superior right to be 
consulted, in the management of industry. And the 
feeling which lies behind this opposition is largely 
at the root of what is called the conflict between 
Labour and Capital. 

Yet it should be noted that the question of the 
control and management of industry does not 
concern Labour and Capital alone. It concerns all 
the factors which are necessary for the efficient 
conduct of an industry. And these factors number 
at least five, all of which are indispensable and no 
one of which could do anything without the co- 
operation of the others. 

(I) In the first place there is the abihtj^ which 
shows itself in initiation, organisation, and direction. 
This is always a vitally important element. But it 
is more important to-day than it has ever been, 
because we are only at the beginning of a period 
when everything wiU depend upon our fertility in 
devising new methods, making experiments, and 
opening uj) new industries. Here lies the main 
hope of our being able, as a community, greatly to 
increase our total production of wealth, and there- 
fore to make possible a wider dift'usion of material 
well-being. This hope depends primarily upon the 


scope which our system gives to men of ideas and 
initiative. The service which such men can render 
to the community as a whole is so immense that it 
will repay a hundredfold anything that may be 
expended to secure it. In discussions on economic 
problems this essential creative element in produc- 
tion is too often identified with capital, because the 
initiators of enterprises often themselves supply the 
capital necessary for carrying them on, or take 
their remuneration in the form of interest on 
" founders' shares." The identification leads to a 
great deal of loose thinking. The ability which 
initiates and directs is a distinct element in produc- 
tion, which has its own weU-earned claim to a share 
of the product, and still more its plain title to a 
very powerful voice in the management of the 
industrj^ which it enriches. 

(2) The second indispensable factor is executive 
labour — of many different kinds, including both 
manual labour and brain labour. There is too 
great a tendency, when we speak of labour in 
industrj^ to think only of manual labour^ Obviously 
manual labour and brain labour are equally in- 
dispensable ; each would be impotent without the 
other, just as both would be helpless without the 
co-operation of the remaining factors in industry. 
We all recognise in theory that this is so, and none 
more clearly than the ablest leaders of the Labour 
Party. But in actual practice it is mainly manual 
labour that we usually have in mind when we think 
of labour as a factor in industry, because it is, 
broadly speaking, manual labour alone whicli is 
represented by the Trade Unions, wliich commonly 


act (whatever they may say) as if " Labour " meant 
manual labour alone. We have to be constantly 
on our guard against the danger of overlooking the 
factor of brain labour in all its very various aspects ; 
and for this reason there is something to be said 
for regarding it as a distinct factor, especially as 
its interests, though assuredly not incompatible, are 
by no means identical with those of manual labour. 
In any case both types of labour are deeply con- 
cerned in the prosperity and the right conduct of 
the undertaking in which they are engaged, and 
upon which their welfare depends ; and the tra- 
ditional view that so long as its agreed wage or 
salary is paid. Labour, whether of hand or brain, 
has nothing further to do with the affairs of the 
undertaking in which it is engaged is a shallow and 
indeed an insulting view. On the other hand the 
view that executive labour alone produces the 
wealth made by the undertaking, and ought alone 
to be considered, is even more shallow. 

(3) The third indispensable factor is Capital. 
Those who provide the capital by which an industry 
is carried on, and risk their savings in doing so, 
are obviously deeply concerned in the prosperity 
of the industry. But it may fairly be said that, 
merely as the providers of capital, and apart from 
any share they may take in the actual conduct of 
the undertaking, they have not the right to be 
regarded as the predominant factor, as the exclusive 
owners of the undertaking. The capital in an 
undertaking is commonly provided in part by the 
initiators ; even if the initiators supply no capital 
directly, they are often credited with capital as a 


form of payment for their ideas and their work. 
But this, though it may often be necessary, is 
illogical and confusing. The initiator's or organiser's 
claim to a share in controlUng the undertaking rests 
far more upon the services which he renders than 
upon the capital which he supplies — far more upon 
his brains than upon his money ; and it would 
avoid much loose thinking if this could be clearly 
recognised. Again, there is no logical reason why 
the capital should not be in part provided by the 
workers in the undertaldng, and it would be highly 
satisfactory if this were more generally the case. 
In that event the workers owning capital would 
have a double interest and concern in the prosperity 
of the undertaking, and a double claim to be con- 
sulted. But as things are to-day, the bullc of the 
capital is often provided by persons not themselves 
engaged in the work of the undertaking. And while 
it is obvious that such persons are rendering an 
indispensable service to the undertaldng, which 
could not be carried on without their help, it is 
plainly not right that they should be regarded as 
its sole owners, and that it should be carried on 
exclusively in their interest. 

(4) But besides the three factors akeady named, 
there are two others, equally important, which are 
commonly overlooked. The first of these consists 
of the consumers of the product of the undertaking. 
Clearly the prosperity of the undertaking must 
depend upon the extent to which it is able to meet 
their needs. Indeed, every undertaking may be 
said to exist, in a sense, for the service of its con- 
sumers. And while in some cases it is difficult to 


isolate or recognise a distinct body of consumers 
served by a particular undertaking, in other cases 
this is quite easy, as in a dock undertaking, which 
exists for the service of the shipping resorting to a 
particular port ; or, again, as in some branches of 
retail trade. It may fairly be said that the con- 
sumers of the product of an undertaking are 
definitely contributors to the prosperity of the 
undertaking, and are genuinely concerned in its 
proper management. 

(5) Finally there is the community as a whole, 
represented by the State. Manifestly the success 
of every undertaking depends upon the help given 
to it, and the favourable conditions provided for 
it, by the community and by the State. From the 
State it obtains the protection of the law, the 
existence of settled order and of the general 
atmosphere of confidence and security without 
which no industry can be successfully carried on. 
To the infinitely varied activities of the community 
it owes good communications, the presence or 
neighbourhood of kindred industries which facilitate 
its own work, easily accessible markets, and a 
hundred other conditions of success, which neither 
Management, nor Labour, nor Capital could create 
of themselves. Moreover the community is deeply 
concerned in the way in which every industry is 
conducted. It may be, or may seem to be, in the 
interest of one or other of the active factors in an 
industry to keep down the volume of its production. 
That is never in the interest of the community, 
which must desire the maximum production of 
wealth with a view to the maximum diffusion of 


comfort. And it is very materially in the interest 
of the community to ensure that every industry is 
so conducted as not to be hostile to good citizenship. 

The conduct of industry is not, therefore, the 
concern solely of Labour or Capital. It depends 
upon the co-operation of at least five indispensable 
factors. And any assertion on the part of any one 
of these five factors — even the community as a whole — ■ 
tJmt industry exists exclusively for its benefit, and 
ought therefore to be wholly controlled by it, is untrue 
and unjust, and is therefore likely to undermine confi- 
dence and to produce, in one quarter or another, a sense 
of grievance. 

We must recognise that in our existing order this 
sort of claim is in fact made and enforced, in a large 
degree, on behalf of the owners of capital ; though, 
as we shall see later, the whole trend of modern 
development in the organisation of industry is in 
the direction of modifying or quahfying this claim. 

It follows that if we mean by Capitalism a system 
in which the oAvners of the capital invested in an 
industry are treated as the owners of the industry, 
LiberaUsm must declare itself opposed to Capitahsm. 
For it is bound to contend that all the factors con- 
cerned have their own distinct and appropriate 
rights, and that therefore industry should be 
organised on a basis which will recognise the 
partnership of all these factors. 

But before we turn to consider how this principle 
of partnership should be wrought out in practice, 
it will be well to consider the other alternatives to 
Capitalism which have been put before us. 



The exaggerated assertion of the rights of Capital 
has led to the promulgation of drastic projects of 
change, two of which, fundamentally inconsistent 
with one another, are advocated by various elements 
in the Labour Party. We have already considered 
these projects in general terms ; but it is necessary 
to look at them a little more closely. 

Both of these projects are marked by one out- 
standing feature. They propose to remedy the 
exaggerated claims of Capital by wholly disregarding 
the claims of Capital to any concern in the manage- 
ment of industry. The ground of complaint against 
Capitalism is that, though Capital is only one of 
the five indispensable factors in production, it 
nevertheless claims a predominant position ; yet 
these schemes propose to give a similarly pre- 
dominant position, or, rather, a more predominant 
position, to only one of the other indispensable 
factors ; though one scheme chooses one factor for 
special favour, and the other scheme chooses another. 

The Sociahst doctrine contends that the owner- 
ship and control of all industries should be assumed 
by the State on behalf of the community. Some 
Socialists, frightened at the thought of the confusion 
which would result from the immediate and sudden 



execution of this gigantic project, explain that it 
must be done gradually, beginning with certain 
obvious industries like the railwaj^s and the mines. 
But we need not attach any weight to this qualifica- 
tion. If it is once accepted that the only just 
method of organising industry is under State owner- 
ship and control, the immediate result of beginning 
with certain industries only must be to produce 
dislocation in the rest ; for the workers in the other 
industries would fail to see why they should be 
denied access to the millennium, and would be apt 
to do their best (and they could do a great deal) 
to make the conduct of these industries impossible, 
with the result of infinite confusion, loss, and distress. 

The argument most commonly advanced against 
the Socialist system is that it involves control by 
an army of bureaucrats, and is likely to lead to 
incompetence, delay, and inefficiency. We need not 
deal with this argument, though it has its importance ; 
the experience of the war period has driven home 
the moral. Moreover no one denounces with more 
ferocity the " Prussianism " and the red-tape of 
State administration than that wing of the Labour 
Party (daily growing in strength) which has adopted 
Syndicalist or Guild-Socialist ideas. 

It is more important to consider what would be 
the effect of the SociaUst scheme upon the develop- 
ment of new ideas, new processes, new inventions, 
new industries, upon which we must mainly depend 
if we are to increase the nation's wealth sufficiently 
to diffuse prosperity widely. Under the existing 
system the initiator of a new idea can get a few 
owners of capital to take the risk of trying the 


experiment. In a large percentage of cases the 
experiment fails — it is only by taking such risks 
that progress can be made — and the o\^Tiers of the 
capital lose all that they have ventured. But the 
venture is worth making because if the experiment 
succeeds they may make very large profits ; and 
it is this speculative hope which makes it possible 
for new ideas to be developed. Under the SociaMst 
scheme the inventor of a new idea would have to 
persuade a Government official to agree to the 
experiment, and the Government official, since he 
would not be deaHng with his own but with pubhc 
money, would have to get the consent of the Treasury. 
He would laiow that he would be Hable to severe 
criticism if the experiment failed, and pubHc money 
were wasted. Is it not obvious that new ideas would 
stand a very poor chance of being fairly tried ? 

But there is a still deeper objection. If the 
State became the sole employer of labour, as it 
would be under the SociaUst scheme, it would 
necessarily become a direct party in every con- 
troversy about wages and the conditions of labour ; 
and it would also have complete control, without 
any competition, over the t}^es of goods which 
the consumer could purchase, and over the prices 
he would have to pay. That is to say, both workers 
and consumers would be far too much at the mercy 
of the officials who would represent the State. As 
things are now, the State (except in " controlled " 
industries) stands aloof from the conflict between 
employers and employed, and from the conflict 
between producers and consumers. It exercises a 
very powerful restraining influence ; it can, and 


often does, intervene in a dispute ; it can perform 
the supremely important part — the most essential 
function of the State — of protecting the essential 
rights and liberties of all citizens against any abuse 
of power. But under the Socialist scheme the State 
must necessarily abdicate this function. It must 
become an interested part}'-, directly involved in 
every dispute. All the hostility now directed by 
aggrieved employees against their employers would 
be turned against the State, And there is no use 
saying that there would be no disputes when the 
State became the employer. We aU know that there 
would. We all know that there have been frequent 
disputes between publicly owned services, such as 
municipal tramways, and their employees. We 
know, also, that the power of the State to bring 
about peaceful settlements of industrial disputes 
has been greatly impaired during the war period 
by the very fact that the State had largely stepped 
into the place of the employers, and was therefore 
regarded by discontented w^orkpeople as their 
enemy. That is a result which is apt to be disastrous 
for the welfare of the community. 

One further result of the Socialist scheme ought 
to be noted. It would complete the ruin of Parha- 
ment. Parliament is already prevented from doing 
its work properly, and from exercising adequate 
control over the officials of the great departments, 
by the mere fact that it has too much to do. What 
the result would be if the management of all the 
industries of the country were added to its present 
functions can only be left to the imagination. Most 
certainly it would be quite unable to exercise any 


ejffective supervision over the armies of officials 
who would be required, and these would become in 
practice irresponsible. 

More than that, a general representative body is 
quite incompetent to deal with such vast and complex 
concerns. The members of a Sociahst parUament 
would inevitably devote themselves to sectional 
interests, and would run very grave dangers of 
corruption. And ParHament would be quite in- 
capable of performing its supreme function of 
watching over and protecting the interests of the 
community as a whole. In the desperate attempt to 
get over this difficulty, Mr. and Mrs. Webb actually 
propose that there should be two co-ordinate 
parHaments, one for political, the other for industrial 
questions. That would not get over the difficulty. 
Even a special industrial parliament would not be 
competent to deal with all the problems of all the 
industries. It would only add the new difficulty of 
a constant conflict of authority between two supreme 
parhaments, for it would be quite impossible to 
mark off clearly and finally the spheres of the two 

The desperate difficulties in which the Socialist 
scheme lands us as soon as we begin to work it out 
in practice has encouraged the rise of another 
scheme, violently in conflict with State SociaUsm, 
but nevertheless advocated by many members of 
the Labour Party, some of whom do not even 
recognise the fundamental inconsistency of the two 
schemes. This is the project known as SyndicaUsm 
or (in its kid-glove form) as Guild SociaUsm. It 
would hand over to the Trade Unions (which are 


somehow to be made to include the brain workers 
as well as the manual workers in each trade) the 
absolute control and management of each industry- 
The various prophets of this project are at logger- 
heads as to how it should be worked out in detail. 
They are agreed only in saying that the producers 
must have complete control, and in practically 
abolishing the power of the State to make any 
conditions at all as to how industry should be con- 
ducted ; and they assert that this will lead to a great 
enlargement of Uberty. 

Assuming for the moment that it would increase 
the liberty of the workers so far as their productive 
work was concerned, it is obvious that it would not 
increase the hberty of the consumers, since it would 
set up a vast system of monopolist trusts, which 
would have the purchaser absolutely at their mercy, 
and which, unlike CapitaUst trusts, would be in no 
way checked or controlled by the State. And as 
every individual only takes part in the production 
of one article, or a fraction of an article, but consumes 
many thousands of articles, on the balance every 
man would suffer. 

But even in his productive work, it is hard to see 
how any man's liberty would be increased. It 
appears that his payment is no longer to be called 
" wages " but " pay " ; but it is hard to see what is 
gained by a change of words. It appears further 
that the worker is not to receive this pay in return 
for work, but on the ground that he is a human 
being. If that means anything, it means that he 
is to be paid the same whether he works or not ; 
which is hardly Ukely to bring about the great 


increase of wealth -production that is necessary if 
the whole community is to be provided with the 
means to a good life. It appears, also, that the 
officials of each industry are to be elected, instead 
of being selected on the ground of their capacity ; 
if that means greater freedom (though it is hard to 
see how it does) it certainly does not mean greater 
efficiency. It appears, also, that a man may be 
expelled from the Guild or Trade Union if he offends 
the elected officials. What will happen to him when 
he is expelled ? He cannot go to another employer, 
for there will be no other employer in his trade. 
And he cannot get admission to another Guild or 
Trade Union. This may be an enlargement of 
Uberty, but it does not look like it. 

But in truth it is mere waste of time to discuss 
this undigested and ill-thought-out proposal. It is 
inspired partly by a well-meaning loose-thinking 
idealism ; but it is also partly inspired by mere 
impatience, by venom and by hate ; and hate 
cannot be the parent of justice. 

We have agreed that the Capitahst system of 
organising industry has grave defects, and that its 
central idea — the exclusive ownership of industry 
by the owners of the capital invested in it — ^is 
fundamentally unjust, because it gives an undue 
predominance to only one among the five in- 
dispensable factors in industry. But when all is 
said, the Capitalist system has produced very 
marvellous results ; and although this should not 
bUnd us to its defects, it is necessary to recognise 
the facts if we are to think sanely on these difficult 


It has been under the Capitalist system that 
man has acquired a control over the powers of 
nature beyond what anybody could have dreamed 
of a hundred and fifty years ago. And the bound- 
less energy in working out new ideas which has led 
to this result, even if its principal motive has been 
the making of gain for individuals, has at least 
enabled us to support a vastly increased population 
in a degree of comfort far surpassing that enjoyed 
by any generation of our ancestors. Apart from 
the dregs of our population (who form the greatest 
shame of our civihsation) no one who will honestly 
consider the facts, with adequate knowledge, can 
deny that in the general standards of life and in 
the variety and range of opportunity open to nearly 
all men, the men of our generation — the poor as 
well as the rich — are far more advantageously 
placed than the men of any previous generation. 
That is due to the amazing increase in the produc- 
tion of wealth available for distribution which has 
been brought about during the period of Capitalist 
ascendancy. It has been accompanied, and is still 
accompanied, by many injustices. It has not 
succeeded in avoiding the denial to many thousands 
of the chance of maldng the best of their own lives. 
But that can be said equally, and probably with 
even greater force, of every system of organisation 
that has yet been tried upon this planet. 

A further achievement of the capitalist period has 
been the immense development of international 
trade, which has been fostered by the restless 
search of individual enterprise for new modes of 
wealth -making. To us this development is of deeper 


concern than to any other nation ; for we depend 
for our very existence upon foreign trade — upon our 
ability to produce, and to sell to other peoples, at 
prices they will pay, sufficient quantities of goods to 
purchase the food-supplies without which we should 
perish. Our dependence upon export trade for the 
very means of subsistence has become so absolute 
that, in any changes we may make, we must be 
perpetually on the alert lest we lose the advantage 
in this sphere which has been won for us during the 
capitalist period. 

But there is another achievement of the capitalist 
period, not less important, which offers the means of 
rectifying the evils of the system. During the 
capitalist period, and side by side with the organisa- 
tion of capitalist power in the economic sphere, 
there has been developed in the political sphere a 
democratically controlled State, which (whatever 
its defects) stands outside the economic conflict, 
and is able to perform, and has in many respects, 
though imperfectl}^ succeeded in performing, the 
function of safeguarding and protecting all men 
against the abuses of power. 

We are all agreed that in the new era now opening 
we must use the power of the community more 
courageously than we have hitherto done to banish 
the injustices and inequities that defile our civilisa- 
tion, and in particular, as part of that great task, 
to remove the fundamental injustice which gives to 
the possessors of accumulated wealth or capital a 
degree of power out of proportion to the services 
which they render. But in doing so we must make 
sure that we do not endanger the one outstanding 

F 2 


good result of the Capitalist system — the rapid 
increase of wealth by the exercise of adventurous 
initiative and energy ; for without a great increase 
of wealth we cannot give happiness to our people. 
And we must also make sure that instead of weaken- 
ing we strengthen the power of the democratic 
State to act as the guardian of the interests of the 
whole community, and to protect the liberty of all 
men against the abuses of power. 

The two mutually incompatible gospels put 
forward by the prophets of the Labour Party offer 
no prospect of fulfilling these ends. In the first 
place, they are both unworkable ; they are both 
untried devices, the detailed operation of which 
has not been clearly wrought out by any of their 
advocates. In the second place, they are both 
marked by the same defect as CapitaUsm, namely 
that they give a preponderant place to only one 
of the five indispensable factors in productive 
industry, and therefore ensure endless bitterness 
and strife. In the third place, they both seem 
certain to result not in an increase but in a diminu- 
tion of the amount of wealth available for distribu- 
tion ; and, what is even more important, they are 
likely to endanger the export trade by which we 
live, since neither the Sociahst nor the SyndicaUst 
system is likely to concentrate its attention upon 
producing goods at prices low enough to command 
foreign markets. Finally — and this is perhaps the 
most important of all — they both threaten to 
destroy the power of the democratic State to act 
as the guardian and protector of the liberty of all 


But to say this is not to say (as the defenders of 
vested interests habitually contend) that there is no 
alternative to the present system. We have next 
to consider how Liberalism would propose to deal 
with the industrial problem ; how we can hope to 
approximate to a fair adjustment of the rights and 
claims of the five indispensable partners in the 
conduct of industry. 



While Liberalism is compelled, for the reasons 
we have given, to discard both the State Socialist 
and the Guild Socialist schemes as promising even 
worse results than the present system, this does 
not by any means imply that Liberalism is satis- 
fied with the present system. On the contrary, 
Liberalism must regard the present system as 
unfair, and as standing in need of far-reaching 
changes ; and this for three principal reasons : — 

(1) Because the system permits excessive in- 
equality in the distribution of the products of 
industry, the owners of capital, in particular, being 
too often enabled to take a share of the product out 
of all proportion to the value of the service they 
have rendered : 

(2) Because the system too markedly dissociates 
the enjoyment of income from the performance of 
social service, and unduly emphasises the motive of 
gain, thus weakening the motive of service : 

(3) Because the system docs not give a fair chance 
to every man of making the best of his own indi- 
viduality, and thereby impoverishes the whole 

When we set out to defuie how Liberalism should 



endeavour to cure these evils in our civilisation, 
there are two fundamental principles which must 
be laid down at the outset. 

The first is that we must recognise and loj^ally 
accept the facts of the situation, and not take the 
easy course of shutting our eyes to facts which do 
not suit our theories. One outstanding fact which 
governs the whole economic situation is that we 
cannot, in these islands, support ourselves. We 
live by our export trade, which brings us the food 
necessary for our sustenance. If we are to earn 
enough wealth to make possible a universal good 
standard of well-being among our people, we must 
produce goods cheaply enough to command large 
foreign markets, and this brutal fact, which cannot 
be argued away, must govern all our policy in 
regard to wages and prices. 

The second principle is that there can. be no 
single, SAveeping formula or panacea, such as those 
which State SociaHsm and Guild Sociahsm put 
before us. Not only does Liberalism beUeve in 
variety of method and in abundant experiment ; 
the industries by which our wealth is created vary 
so widely in their conditions and in their stages of 
development that no single formula could possibly 
cover all their needs. 

Some industrial undertakings, especially in their 
early and experimental stages, can only be expected 
to thrive under the complete control of an individual 
enterpriser, often a capitaUst who is willing to risk 
the total loss of his money on the chance of achieving 
great success. Others may be controlled and 
managed by the workers with hand and brain 


engaged in them, borrowing on the market, or 
supplying themselves, the capital they require. 
Others may be best conducted by organisations of 
the consumers whose interests they exist to serve. 
Others — well-established concerns following under- 
stood methods — may lend themselves to a variety 
of different experiments in the co-operation of the 
various factors of production, labour, management, 
capital, the consumers. Yet others, more especially 
great monopoUes or public services, may be best 
carried on under public ownership and control, 
whether on the scale of the municipaUty or on the 
scale of the nation. In a free, progressive, and 
enterprising community we ought to contemplate 
and welcome an infinite variety of method. And 
such a variety is wholly in accord with the ideas of 
LiberaUsm, which does not believe in cut-and-dried 

It is worth noting that even as things now are, 
though control by the owners of capital is the 
general rule, there is much greater variety than 
people generally recognise — much greater than the 
State SociaUst or the Guild Socialist theories would 
permit. There are great undertakings in which 
the ultimate control rests with the consumers, who 
provide the bulk of the capital required, such as 
the great Co-operative Societies. There are under- 
takings in which the amount of the return taken by 
capital is strictly limited to a fixed rate of interest, 
the balance being wholly spent upon social service, 
as in the PubUc House Trust Companies or the 
Garden Suburb Tenants' Companies. There are 
statutory public trusts in which the same rule holds, 


like the Mersey Docks and Harbour Board, which 
is forbidden to make any profit. There are under- 
takings managed wholly by the workers, such as 
the small Co-operative Production Societies, and 
the recent experiment in Building Guilds. There 
are very numerous undertakings owned by munici- 
palities, the profits of which go to the rehef of the 
rates. And there are a great many different kinds 
of experiments in Co-partnership or Profit-Sharing 
as between employers and employed. All these 
are departures from a purely capitalist system. 
The work of the Co-operative Societies and of the 
municipalities is already on so great a scale as to 
constitute a material modification of the " capitalist " 
character of our system. It is no longer true to 
say that industry is managed on a purely capitalist 
basis. Industry is feeling its way along many 
new paths, some suitable for one kind of work, 
others suitable for another. It is the mark of 
wise men to learn from experience rather than to 
act on abstract and untried theories spun from their 
inner consciousness. We can learn a great deal 
from these experiments, and the more varied they 
are the better. 

Not only are many new experiments in industrial 
organisation now being made, but there are two 
very instructive developments affecting all the 
regular capitalist undertakings which suggest that 
a change is gradually taking place in their character. 

The first of these is the fact that an increasingly 
large proportion of the capital invested in industry 
takes the form of debentures or preference shares, 
which earn only a fixed and limited rate of interest, 


and do not get any share of the residual profits 
beyond this. So far as shareholders of this type 
are concerned, it is not true that the concerns in 
which their money is invested are run solely to 
earn dividends for them. The steady increase in 
the proportion of the capital invested in industry 
which is obtained on these terms shows that there 
is an immense class of thrifty investors who desire 
only a moderate return on their savings, with a 
reasonable security. This is quite different from 
the aims often attributed to the " bloated capitalist " ; 
and the relative growth of this type of capital is a 
very significant thing. 

The second development is much more recent. 
It is the assertion, on the part of the State, of a 
right to a share in exceptional profits earned by 
industrial concerns. This claim was first put 
forward as a part of war finance in the form of the 
Excess Profits Duty. That is, as it stands, an 
extremely unfair tax, which gravely penaHses enter- 
prise, presses with great injustice on some people 
while it lets off others more lightly, and lends itself 
to deception and evasion. It cannot last in its 
present form, because the basis on which it is levied 
is wholly unfair. But something of this kind is 
likely to become a permanent part of the national 
fiscal system, because it is manifestly reasonable that 
when a concern is exceptionally prosperous it should 
share its prosperity with the community, to whose 
co-operation it is in no small measure due. 

We are thus obviously living in a time when the 
economic system is undergoing a transition, a 
transition the tendency of which, as a whole, is to 


minimise the more objectionable features of capi- 
talism. We ought to study and understand these 
changes and experiments, in order that we may so 
far as possible guide the stream of change in the 
direction which we desire. It is much easier and 
more effective to make use of a powerful current 
than to try suddenly to deflect it into a wholly 
new course, in which it may very easily burst its 
banks and destroy the fields. 

But whatever different methods of organisation 
and control may be set on foot by the enterprise of 
public-spirited men in a free community, there is 
one essential condition of social health which is 
demanded by Liberal principles. The democratic 
State must be kept as free as possible from being 
an immediate party to the controversies and the 
friction which must always arise in the adjustment 
of the claims of the various factors in industry, in 
order that it may perform with impartiality its 
primary function of safeguarding the rights and 
liberties of all citizens. 

Even when an industry is bi'ought under public 
ownership on a national scale, the State as such 
should, on this principle, hold aloof from the business 
of direct management. Its duty should be to 
define the general principles in accordance with 
which the work is to be done, to see that the right 
people are chosen to carry it on, to hold itself free 
to criticise the results of their work, and to devise, 
when necessary, the means of remedying any in- 
justices or failures that may be developed. In 
industry, as in other spheres, the function of the 
State is not to do the work itself, but to lay down 


the rules under which it is to be done in such a way 
as to secure the highest degree of justice and free- 
dom ; and then to make sure that these rules are 

In laying down rules for the conduct of industry, 
a Liberal State will have regard to the rights and 
claims of each of the five main factors in productive 
industry ; it will not, like the State Socialist and 
Guild Socialist schemes, pay attention to only one 
of them . It will think of these five factors as partners 
in the production of the wealth by which the nation 
lives ; partners who cannot be expected to work 
well together unless all get their due. It will there- 
fore endeavour, both in respect to the sharing of the 
product and in respect to control, to secure for 
each factor its due, and to make it easy for them to 
co-operate in zeal and harmony, while leaving 
freedom for all sorts of experiments and varieties of 

What are the reasonable claims of each of the 
five contributory factors ? What are the condi- 
tions which will evoke the best activities, not of 
one, but of all five ? 

(1) Initiative and organising ability, in the first 
place, ought to be assured of a solid reward pro- 
portionate to its efficiency, since it is the most 
potent creative force in industry. This reward, in 
most cases, may appropriately take the form of a 
commission either on the total turnover or on the 
surplus of the industry. It is generally undesirable 
that it should take the form of an unlimited share 
of the surplus profits of the industry, based upon a 
nominal holding of capital ; because this causes 


confusion between the return on capital (which is 
interest) and the rewards for initiative effort. But 
the main thing which this kind of ability needs and 
desires and ought to get, in the interest of progress, 
is a very powerful voice indeed in the management 
of the concern. A very powerful voice, but not 
absolute authority, which can never be safely 
trusted to any human being. 

(2) Labour of hand and brain is entitled to expect 
from the industry to which it is devoted (a) a wage 
sufficient to maintain a man and his family in 
reasonable comfort according to current standards, 
this being the primary claim on the income of every 
concern ; (6) additional rewards for special skill or 
exceptional energy ; (c) reasonable security against 
the loss of employment through causes not within 
control, such as fluctuations of trade ; (d) hours 
short enough to avoid serious fatigue, and to leave 
a real margin of leisure for the enjoyment of life ; 
(e) such a degree of influence in the conduct of the 
business as may make a man feel that he is not 
treated as a mere commodity hired in the market, 
but as a partner in service, a citizen of the industry ; 
(/) real opportunities and prospects of promotion 
such as may give interest to his work and encourage 
him to put his heart into it. 

(3) Capital must receive a fair rate of interest, 
otherwise it will not be forthcoming ; and it is 
entitled to such a share in the management of the 
concern as will enable it to ensure that its stake in 
the concern is not being endangered by rashness, 
or by the exaggerated claims of the other partici- 
pants. Where the risk of total loss is slight, capital 


has no more than a right to the market rate of 
interest ; it has no right to bonuses, or distribu- 
tions of free shares. Where the risk of loss is very 
great, as in new and experimental business, capital 
must be offered the chance of very large profits, 
otherwise the funds necessary for useful but risky 
experiments will not be forthcoming. 

(4) The consumers of the product of an industry 
have the right to receive the commodities produced 
by the industry at the minimum price compatible 
with the fulfilment of the conditions already laid 
down. Where there is free competition among a 
number of concerns in the same industry, this may 
be trusted to secure the desired end. But where the 
industry has been organised on a monopolist basis, 
either under pubUc owTiership or otherwise, the 
consumers ought to be safeguarded by State action, 
and may in some cases legitimately claim to be 
represented in the management of the industry. 

(5) The community, and the State acting as its 
representative, have the right to be assured that 
every concern carried on under State protection 
produces for the benefit of the community the 
largest possible amount of wealth, without artificial 
restriction ; and where such anti-social restriction 
is being practised in the presumed interest either 
of capital or of labour, the State should have the 
right to intervene, and to inquire into, and if 
possible to suggest the means of removing, the 
causes of the evil. Moreover, since the State and 
the community contribute in innumerable ways to 
the successful working of all industries, they have 
in theory a right to a direct share of the product. 


It would be unwise to enforce this claim in all 
cases, since this would hamper the development of 
industry ; but assuredly the State has every right 
to claim a share in the product of concerns which 
are enjoying exceptional prosperity, especially when 
the prosperity is due to conditions over which the 
organisers of the industry have no control. 

Liberalism aims, then, at bringing about a fairly 
adjusted co-operation or partnership between all 
these factors in industry, in which no one of them 
shall have an exclusive mastery but all shall have 
a just share of the product, and also such a share 
of control as may enable each to feel that it is 
treated as a partner, and as may be appropriate to 
the part each plays in the common effort. 

Now this is plainly not at all easy to secure. We 
cannot simply lay down a few broad and rigid 
rules, to be apphed to all industrial undertakings 
ahke, defining how the product is to be divided, and 
how the functions of control are to be shared. We 
cannot do this for two reasons : firstly because the 
conditions vary infinitely in various industries, and 
in especial the relative importance of the various 
factors differs widely from case to case ; and secondly 
because the laying down of any broad and rigid 
rules would be to destroy just that elasticity and 
freedom for experiment which it is most important 
to maintain. 

But the difficulty of finding a single cut-and-dried 
solution for this complex and many-sided problem 
ought not to make us feel that we are on the wrong 
lines. On the contrary we ought to recognise that, 
in dealing with a problem which has the complexity 


and variety of life, any cut-and-dried solution is 
certain to be inadequate. 

No one would deny that the best way of solving 
our problems would be by means of frank discussion 
and co-operation between representatives of the 
various factors in each industry, especially because 
this would render possible the variety of method 
necessary to meet the varying needs of different 
industries. And the freedom and variety thus 
attainable would be wholly in accord with the 
ruUng ideas of Liberalism. Unhappily the atmo- 
sphere of mutual suspicion and distrust, now widely 
prevalent, has made such frank discussions hard to 
achieve. The primary objects of a Liberal industrial 
policy must therefore be (1) to remove, so far as 
possible, the more obvious causes of this distrust, and 
(2) to set on foot appropriate machinery whereby the 
partner-factors in industry may freely adjust their 
own relations with the support and encouragement 
of the State. 



The first fact which must strike any student of 
the existing system is that, so far as concerns the 
rates of wages, the hours of labour, and the distribu- 
tion of work among difEerent types of workers, 
there already exists a system of divided control, 
since all these matters are settled, in all the main 
industries, by negotiations between the Trade 
Unions and the accepted spokesmen of the directors 
of the industries, who speak not only for capital 
but for management. 

But there are two defects in this system. The 
first is that it is only the manual labour engaged in 
industry which shares in this divided control ; brain 
labour has, as a rule, no part in it ; nor have the 
consumers. The second defect is that it is divided 
control, not partnership. It is a relation of conflict, 
not of co-operation. 

Undoubtedly the system of collective bargaining 
has brought about great improvements in the 
conditions of industry ; and it gives us the founda- 
tions upon which something better may be raised. 
But it cannot be regarded as a healthy state of 
things that the bargaining should be carried on, as 

81 Q 


it now generally is, under a threat of forcible action 
ruinous to all concerned. Under such conditions 
each side to the bargain naturally and necessarily 
thinks primarily of its own interests, and often 
takes a short-sighted view of hoAv these interests 
can best be served. 

It ought to be a recognised and self-evident 
principle that the well-being of the worker and the 
productive activity of the industry are in the 
fullest sense mutually dependent. The acceptance 
of this principle is impeded, on the side of the worker, 
by his conviction that the sole end for which the 
industry is conducted is the making of profits for 
the owners of capital. It is impeded, on the side of 
the organisers and directors of the industry, by the 
behef that the effect of many Trade Union methods 
and stipulations is to place needless difficulties in 
the way of production, and that, though the purpose 
of these restrictions is the defence of the worker, 
their result is to hamper the industry as a whole, and 
therefore to impoverish both the workers and the 
community. Collective bargaining conducted under 
a threat between two parties inspired by such beliefs 
is not likely to lead to good results. In so far as 
this mutual distrust rests upon real foundations, it 
can only be got rid of by dealing with its causes, a 
point to which we shall return later. 

In the meanwhile it is important to recognise 
that, over a large field, divided control already 
exists. It should be the object of Liberal poUcy to 
turn this divided control, within its appropriate 
sphere, into an organised system of partnership in 
control. Just as, in foreign relations, we aim at 


substituting frank discussion and co-operation in a 
League of Nations for secret diplomacy, ultimatums, 
and discussions under the threat of war, so, in the 
industrial field, the best results are Ukely to be 
obtained by open conference under peaceful con- 

The path of development has already been indi- 
cated by the Whitley Councils and, still more 
clearly, by the system recently set up for determining 
labour problems on the Railways. It is wisdom to 
recognise and develop a healthy process of evolution. 
But we need to go much further than we have yet 
gone ; and in so far as the Whitley Councils have 
failed to achieve their ends, part of the cause lies in 
the fact that their functions have not been widely 
enough conceived. The object of any such system 
should be, not the mere avoidance of disputes, but 
the just determination of the conditions of work in 
the industry concerned. And it should consider 
not only the problems of the manual-workers, but 
also those of the brain-workers ; and should have 
regard to the needs not only of the producers but 
of the consumers. 

These conditions would be satisfied if in every 
organised industry there were a standing Council 
including not only Trade Union representatives and 
spokesmen of the managerial and organising side of 
industry, but also directly appointed representatives 
of the brain-workers in the industry. Such a 
Council should have power to consider minimum 
wage-rates or salary-rates for each type of labour, 
whether of hand or brain, the hours of work and the 
problems of fatigue, the methods of workshop 

G 2 


organisation, and, in short, all the problems affecting 
the worker in his relation to his industry. The 
agreed decisions of these Councils should, after 
being reported to the Ministry of Labour and laid 
upon the table in Parliament, be made binding upon 
all concerns engaged in the industry, as minimum 
conditions ; leaving to each concern the power to 
make such special arrangements as it thought fit, 
so long as these minimum conditions were observed. 

In order that these Councils might be enabled to 
carry on their discussions with adequate knowledge, 
it would be necessary that they should have before 
them certain general information as to the financial 
condition of the various concerns in the industry. 
They should laiow what was the average rate of 
interest earned by capital in the industry, what was 
the rate at which capital could be borrowed in the 
market for necessary expansions, and what share 
of the gross product had to be devoted to administra- 
tive and other expenses. They should have before 
them the fullest available information as to the 
prospects of the industry, the extent to which it 
depended on export, the state of the market both 
for raw materials and for the finished product, and 
the progress of new and improved methods in our 
own and other countries. 

The institution of such a system would mean the 
creation of a real partnership in the determination 
of the conditions of the industry as a whole. In all 
matters affecting the conditions of labour there 
would practically be joint control instead of divided 
control. And it is very unhkely that, working on 
such a basis, bodies of reasonable men would fail to 


arrive at satisfactory solutions. At the same time 
the workers would preserve the right to withhold 
their labour if they were dissatisfied with the results 
of these discussions and could not obtain a recon- 
sideration of the Council's decisions. But before 
they did so it would be reasonable that a clear state- 
ment of the reasons for the decisions of the Council 
should be circulated to all the workers concerned. 
On the other hand individual concerns would 
preserve (subject to the general conditions imposed 
upon the whole industry) the right to work in their 
own way, and to carry on their own experiments. 

The institution in every organised industry of 
Councils of this kind, enjoying large powers, would 
be a proper subject of legislation, which might have 
to be made gradually operative, because not all 
industries are ripe for such treatment ; but the 
Councils would increase their range as they demon- 
strated their success. The creation of such a system 
would be wholly in accord with the Liberal view of 
the functions of the State in industry — that of 
defining who should perform a given land of work, 
instead of trying to do it itself, and that of seeing 
that activities necessarily affecting the life and 
liberty of citizens are carried on in a just and healthy 

Industrial Councils thus constituted could not 
but take into consideration the difficult and vital 
jiroblem of unemployment, which is probablj^ the 
key-problem of the whole industrial situation. 
Until men are adequately safeguarded against the 
miseries of unemployment and all that it involves, 
resentment against the \\'hole industrial order will 


continue to be deep and to be justified. For a 
civilisation which cannot so organise itself as to 
ensure that the honest man who wants to work 
shaU be safe from humiliation and from starvation 
stands self -condemned. 

When a man gives his strength to the service of 
an industry, he has a right to expect that, so long 
as he works honestly, he will be sure of a decent 
livelihood. If he is liable to be turned off at a 
week's notice, without any adequate provision for 
his future maintenance, for no fault of his own, 
because of some trade-fluctuation, or possibly 
even because the concern in which he is employed 
is badly managed, it is impossible for him to think 
of himself as a citizen of the industry ; impossible 
that he should not feel that he is being exj)loited 
without ruth, and that the owners of an industry 
in which he has no sense of partnership use him so 
long as they want him, and fling him aside when they 
don't. Under such circumstances he would be more 
than human if he did not often give grudging work. 
In some trades, where there are periods of pressure 
and jDCriods of slacloiess, there is normally an un- 
employed reserve of men, and the existence of such 
a reserve is held to be, and probably really is, as 
necessary for the conduct of the industrj^^ as the 
reserves of an army are necessary for the conduct of 
war. The army pays its reserves and keeps them 
in training. The industry pays them nothing. So 
long as this short-sighted inhumanity continues, it 
is not to be expected that there will be either zeal 
or confidence among the w'orkers in industry. The 
solution of the imemployment problem lies at the 


root of the whole problem of industrial reorganisa- 
tion. And the only healthy solution of it will be 
one which will enable every man to feel that when 
he becomes a citizen of an industry he is safe against 
the miseries of unemployment, so long as he offers 
honest work. 

Until recently the only provision for deahng with 
this evil was made by the workpeople themselves, 
by co-operative action through their Trade Unions. 
It is impossible to overvalue the work thus done by 
the Trade Unions. It deserved and won for them 
the lo5^alty of their members, and notliing ought to 
be done which would undermine this loyalty. 

But the resources of the Trade Unions alone were 
wholly insufficient to meet the need ; nor was it 
right that a burden which properly belonged partly 
to the industry as a whole and partly to the com- 
munity should thus be thrown upon the workers 
themselves. It ought to fall primarily upon the 
product of the industry. 

The Liberal Government of the pre-war period 
took up the problem, and tried to solve it on the 
lines of a system of State Insurance, with compulsory 
contributions from employers and employed. There 
is much to be said for such a system. It enables the 
trades in which unemployment is least prevalent to 
help those in which it is more common ; and it 
recognises the responsibility of the State for en- 
suring the minimum conditions of welfare for its 
citizens. On the other hand it conceals or obscures 
the responsibility of each industry for the proper 
maintenance of its own citizens out of its own 
product, and removes any motive for so arranging 


the work in the industry as to reduce unemployment 
to a minimum ; a good deal could often be done in 
this way, and would be done if tlie responsibility 
were clearly brought home. 

A system of State Insurance, supplemented by 
other forms of State action, must continue to be a 
necessary element in the provision for dealing with 
unemployment, more especially in the less highly 
organised trades. But it is unwise to trust to State 
action alone, or mainly, for the solution of the 
problem. The primary responsibility should be 
thrown upon each industry, on the principle that, 
in normal conditions, every industry ought to 
maintain its own citizens out of its own product. 

Plainly the best way of dealing mth unemploy- 
ment is to prevent it, so far as that is possible. In 
many industries much could be done, by the adjust- 
ment and distribution of work, to guard against 
periods of depression ; and if the conductors of each 
industry knew that in any case the main burden of 
maintaining unemployed men must fall upon them- 
selves, they would Iiave every motive for using all 
available means of averting unemployment. A 
Council representing the whole industry could often 
give useful help and guidance in this regard, if it 
worked harmoniously ; and the function of studying 
this problem as it was affected by the special con- 
ditions of the industry, and of considering how it 
could be averted or minimised, would be one of the 
most useful functions wliich such a Council could 

There are obvious difficulties in the way of carrying 
this principle into effect throughout the whole field 


of industry. Some induRtries are more liable to 
seasonal fluctuations than others ; in some industries 
the personnel changes constantly, while in others it 
is relatively stable ; and an industry that is definitely 
in a state of progressive decay must obviously 
present special difficulties. But most of these 
difficulties are capable of being overcome, especially 
if frank co-operation is made possible between the 
organisers of the industry and its workpeople, as it 
would be under a system of Industrial Councils 
possessing adequate knowledge of the financial 
conditions and prospects of the industry as a whole. 

These difficulties, indeed, point to the necessity 
of dealing with the j)roblem on different lines in 
different industries, in a way which would not be 
possible under any purely State system. And 
nothing could be healthier than to thrust upon the 
organisers and the workpeople in such a trade as 
that of Building (which is peculiarly liable to seasonal 
fluctuations) the dut}^ of working out, in partnership 
and with regard to all the conditions and prospects 
of the industry, the best way of dealing with the 
problem. If they set to work with good will, they 
could do it far better than any Government depart- 
ment — at any rate, so far as the industry could be 
treated as a distinct and independent entity, and 
so far as it was possible to disregard its relations 
with other industries. 

In many industries it would be possible for an 
Industrial Council such as we have described to 
work out to-morrow a fair scale of unemployed pay, 
on the assumption that it was to be provided partly 
out of the ordinary Trade Union funds, but mainly 


by means of a levy on all the firms in the industry 
proportionate to the number of their employees ; 
the fund thus created by levy being built up espe- 
cially during periods of good trade. The adminis- 
tration of any such system ought to be entrusted 
primarily to the Trade Unions, partly because they 
have the full confidence of their members, partly 
because they have efficient machinery available for 
the purpose, while it is to their interest (as their 
own funds would be involved) to guard against 
abuses. The Trade Union officials could certify 
that such and such men had been admitted to 
receipt of Union out-of-work pay ; and on this 
certificate they could be empowered to draw an 
agreed proportion from the fund created by levy. 

The schemes framed under such a system might, 
and indeed ought to, vary from one trade to another. 
Once they had been agreed upon by the Industrial 
Council they might be submitted to the Ministry 
of Labour, just as County Council schemes for 
educational work are now submitted to tlie Board 
of Education ; they might also be laid upon the 
table in Parliament, so as to be open to criticism. 
But once they were endorsed they would become 
compulsory upon all concerns in the industry. 

The advantages of this method of dealing with 
unemployment are many and great. It would 
definitely throw upon eacli industry the responsi- 
bility for maldng provision for the welfare of all its 
members, and thus enable these members to feel 
that they were fairly treated. It would encourage 
workers to do their best by freeing them from the 
fear that hard work on their part miglit involve 


unemployment and ruin for their fellows. It would 
make it the obvious interest of the organisers of 
industry so to distribute their work as to reduce 
unemployment to a minimum. It would encourage 
co-operation in the common interest between the 
various factors in industry. It would establish a 
real measure of self-government for workers in 
an aspect of industrial life vitally important to 

At the same time the system has drawbacks and 
limitations of such a kind as to make it certain that 
it could not by itself form a solution of the problem. 
It would be most easily applied in steadily pros- 
perous industries, and in those which suffer least 
from seasonal fluctuations ; and it would not be 
fair that these more happily placed industries 
should be wholly exempted from the duty of helping 
to relieve the pressure upon the less fortunate : to 
allow them to witlxdraw wholly from any national 
organisation for dealing mth unemployment might 
have disastrous results. 

Perhaps the most outstanding illustration of this 
danger is to be found in the case of decaying indus- 
tries, to which we have already incidentally referred. 
NeAv forms of industry are always arising, and taldng 
the jDlace of older forms ; and this process is likely 
to go on in an increasing degree, as scientific inven- 
tion progresses. If we are to maintain or increase 
our prosperity, we must not resist but encourage 
this process ; and this means that we must con- 
template a frequent transfer of labour from one 
industry to another. One of the dangers of a 
system of provision against unemployment organised 


entirely according to trades Avould be that it would 
place difficulties in the way of such transfers. The 
workers in a decaying industry would be tempted to 
remain in it too long, and the burden of meeting a 
growing charge for unemployment would accelerate 
the ruin of the industry, and thus intensify the 
general problem of unemployment. The difficulty 
of adjustment between one industry and another 
would be further inci-eased by the fact that, under 
such a system, each industry would be tempted to 
restrict the number of workers admitted to it, lest 
they should become a burden upon the industry. 
In the days when Poor Law relief was administered 
separately by each parish, the parish authorities 
were loth to allow any newcomers to get a " settle- 
ment " within the jDarish, lest they should later 
become burdensome to the rates. We are accus- 
tomed to declaim against the iniquity of this long 
disused system, wluch involved a grave restriction 
of the liberty of poor men ; we must beware lest we 
reproduce it in a new form. There is a real danger 
that this result might follow from a system of 
unemployment provision based wholly upon indus- 
tries. It might easily tend to an intensification of 
that movement towards a rigid industrial caste- 
system which forms one of the most perturbing 
features of to-day, and on which we shall have more 
to say later. 

These difficulties arc real and great, and ought 
not to be slurred over. They point to the necessity 
of a State organisation alongside of a trade organisa- 
tion for dealing with unemployment. If men and 
women could be helped and trained to have a 


second craft iij)on which they could fall back when 
the first failed them^ — and the experience of the war 
has sho\^^l that adequate craft-skill can be acquired 
far more rapidly than used to be supposed — it would 
often be possible at once to relieve the pressure of 
unemployment and to facilitate the rise of new 
industries, while saving men from the wound to 
their self-respect which comes from receiving, and 
the community from the burden of paying, wages 
for which no work is rendered. Much could be 
done in this way if jDcriods of unemployment were 
used for the training of the unemployed in alternative 
occupations. But such a system could not fairly 
be introduced suddenly, as things stand to-day ; 
for the workers in each industry have a right to be 
safeguarded against any sudden inrush of com- 
petitors from other trades. And, as we shall see 
later, it is not to be expected that the increasing 
exclusiveness of various trades will be seriously 
modified unless and until the causes which have 
given rise to it are cured. 

The problem is not insoluble. But it demands the 
most careful study and inquiry ; nor can a satis- 
factory system of transfer from one industry to 
another, or even from one occupation to another 
within the same industry, be seriously attempted 
until each industry has solved its own problem so 
far as it can be separately solved. The first necessity 
is that the responsibility of each industry for the 
welfare of its citizens should be clearly established 
and wrought out. That done, the question of the 
conditions under which transfer from one industry 
to another, or the practice of several occupations 


by the same man, is desirable and can best be 
arranged, will present itself in a different aspect. 
Meanwliile a State-system of insurance ought to 
be kept in being concurrently with a trade-system ; 
the most earnest and systematic inquiry into the 
whole problem ought to be carried on both by the 
State and by individual industries through their 
Councils ; and just as each industry strives to 
organise its activities in such a way as to distribute 
work as evenly as possible, so the State ought to 
work out every possible means of distributing 
necessary public works and public purchases in 
such a way as to counteract the fluctuations of 



The methods suggested in the last section for 
bringing into operation a system of joint control or 
regulation of the conditions of work in whole 
industries would undoubtedly contribute very greatly 
to the solution of the industrial problem. But they 
would not be enough by themselves. We have 
still to consider how far a real partnership of the 
various factors in industry is possible in the manage- 
ment of individual concerns, working with a large 
degree of freedom and initiative under the general 
conditions laid down by the Industrial Councils. 

And here we are brought at once face to face with 
the plain fact that it is impossible, except in quite 
minor matters, to consider control apart from the 
distribution of the product of industry. This is 
the case even in regard to the general regulation of 
industry dealt with in the last section : the regula- 
tion of wage-rates and the treatment of unemploy- 
ment, which we defined as the principal business of 
Industrial Councils, necessarily and profoundly 
affect the distribution of the wealth created by the 
industry, and for that reason we found it necessary 
to lay it down that the Councils must have before 



them a general knowledge of the financial condition 
of the industry as a whole. 

But it is still more impossible to dissociate the 
twin questions in deaUng with individual concerns 
which handle directly the products of industry and 
are primarily responsible for distributing as well 
as creating the profits that accrue. There is no 
getting away from the obvious fact that the business 
of every industrial concern is to create wealth, and 
to divide it out when created. 

Now the primary and predominant part in the 
control of an industrial concern must necessarily 
belong to the organisers and initiators whose 
function it is to determine what forms of wealth 
shall be made, in what quantities, and for what 
markets ; upon the determination of these points 
the whole organisation of the concern must neces- 
sarily depend. No concern can hope to prosper 
which does not secure the services of the right sort 
of men for these functions, and which does not 
invest them with a high degree of independent 
authority, so long as they show themselves competent. 

But no concern which is not purely private and 
individual permits even the ablest of organisers to 
exercise an unchecked power. As things are, the 
organisers of every industry are subject to the 
control of the owners of the capital. It is true that 
in normal times the power exercised by the owners 
of capital does not amount to much. They receive 
an annual report ; they nominally elect the Direc- 
tors, but in ninety-nine cases out of a hundred they 
simply accept names put before them by the Board 
of Directors. But if things go badly wrong they 


can interfere. And the mere fact that they have 
these powers ensures that the general pohcy of 
the concern will be carried on in accordance with 
their interests. This is the essence of the CapitaUst 

It is not without a certain justification ; and those 
who most disUke Capitalism ought to be most 
careful to appreciate this justification, because it 
explains why the Capitalist system has lasted so 
long. The owners of the capital exercise final 
control because, since they take the residual profits, 
it is to their interest that the concern should produce 
the maximum amount of wealth for which there is 
an effective demand, or, at all events, that it should 
produce the maximum amount of profit ; and 
although the production of the maximum product 
is not the same thing as the making of the maximum 
profit, yet in general and on the average production 
and profit go hand in hand. It Is for this reason 
that the holders of preference shares, with a limited 
rate of interest, are commonly excluded from a 
share in this final control ; they do not seem to be 
concerned to secure the maximum production of 
wealth, so long as there is enough to pay their 
interest ; they are in the same position as the 
employees in the industry, who draw fixed wages or 

Now the maximum production of exchangeable 
wealth is really to the interest of the workers as 
well as to that of the owners of capital. But un- 
fortunately this is not obvious to the workers, as 
they have shown by restricting output. It is 
also, and in this case quite obviously, to the interest 



of the community as a whole ; and that is why the 
community as a whole has so long tolerated and 
upheld the Capitalist system — because, as a rule, 
it tends to the maximum production of wealth, 
and therefore to the welfare of the community. 

The system of exclusive capitaUst control has 
many and great drawbacks ; we need not go over 
them again ; the greatest is that it is felt to be, 
and indeed is, unjust. But it has this one great 
justification, that it has tended to the maximum 
production of wealth, which is an indispensable 
condition of national welfare. And no system of 
control, however great its theoretical merits, wiU 
serve its purpose unless it has this merit of Capitahsm 
of tending to the maximum production of wealth. 
Indeed, one of the main reasons for a departure from 
pure capitahst control is just that it is ceasing to 
bring about the maximum production of wealth, 
because of the growing sense of its injustice. 

The claim of the brain- and hand-workers in 
industry to a share of control over the concerns 
in which they are employed rests upon wider grounds 
than their mere economic interests ; it rests upon 
grounds of citizenship. But it wiU not lead to 
satisfactory results, whatever mode of organisation 
may be adopted, unless it brings about a strengthen- 
ing of the motives for the maximum production of 
wealth. If it has this result, the admission of the 
workers to an effective partnership in the control 
of industrial concerns will be beneficial to the 
community, and will therefore last and grow. If it 
has the opposite result, it will come to an end 
because it will be harmful to the community. 


Some tell us that if and when the workers share 
in the control of industry, the sense of responsibility 
and the spirit of pubUc service will be enough to 
ensure that they will do their best. It is, of course, 
important to strengthen these motives. But it is, 
as we have earlier suggested, sentimentahsm to 
attempt to substitute the motive of service for the 
motive of personal advantage. The two motives 
have to be combined and reconciled if we are to 
get the best results from average men. 

It appears, therefore, that the successful organisa- 
tion of any system of partnership in control must 
depend upon the working out of some just method 
of profit-sharing which will enable all workers to 
feel that it is their interest, and also the com- 
munity's interest, to bring about the maximum 
production of wealth, and not merely the interest 
of the owners of capital. That done, it would 
become natural and advantageous on every ground 
that the workers should have direct representation 
upon the directorate of the concern in which they 
were employed ; and their presence there would be 
of the utmost benefit to everybody concerned. 

There have been, in recent years, many schemes of 
profit-sharing and co-partnership, some of which 
present features of great interest. They have not, 
as a rule, been successful, partly because they were 
mostly open to grave criticisms, partly because 
they generally did not carry with them any share 
in control, but mainly because they have been 
regarded with great suspicion by the workers. The 
reasons for this suspicion are of great significance 
and importance. First of all, it is widely beheved 

H 2 


(in many cases not without reason) that the main 
object of such schemes is merely to increase output 
and therefore to swell the dividends of the owners 
of capital. Secondly it is feared that their purpose 
is to undermine the system of Trade Union regula- 
tions whose aim is to protect the workers and 
prevent unemployment. No system of profit-sharing 
is likely to win unqualified acceptance unless these 
grounds of suspicion are removed. 

This means that a workable system of profit- 
sharing and of partnership in control will be con- 
ditional upon (1) a fair attempt to reduce within 
reasonable limits the share of the product of industry 
taken by capital, a share which is undoubtedly often 
excessive ; (2) a reasonable assurance that increased 
activity in production will not lead to an increase 
of unemployment ; and (3) a reasonable guarantee 
that profit-sharing will be accompanied by a share 
in control similar in kind to that enjoyed by the 
owners of capital. 

The second of these conditions would be fairly 
met by an adequate treatment of the unemployment 
problem. But it suggests that profit-sharing schemes 
are not likely to be successful except in industries 
where a satisfactory mode of dealing with unemploy- 
ment has been wrought out. Xhe third condition 
must obviously depend upon the character of the 
profit-sharing scheme itself. But the first condition 
is perhaps the most vital ; we shall turn to it 

Meanwhile it is obvious that schemes of profit- 
sharing and co-partnership are still in so experi- 
mental a stage that they are not ripe for legisla- 


tion ; indeed, in any case, the basis and methods 
of such schemes must vary widely according to the 
varying conditions in different industries. But a 
Liberal State ought plainly to regard it as a duty 
to encourage and to study such experiments in 
every way possible ; and to assist them by making 
available not only the fullest knowledge of all such 
schemes that are at work in this and other countries, 
but all honest and effective criticisms upon them. 

But while it is impossible for the State, now, or 
perhaps ever, to lay down rules for profit-sharing 
and co-partnership, it is possible for it to assist the 
creation of conditions favourable to the growth of 
such a system, by means of provisions for ensuring 
a juster division of the product of industry, and in 
particular a reasonable limitation of the share of 
this product which may normally be taken by the 
owners of capital. The State is, according to 
Liberal ideas, fully entitled to do this, not only in 
virtue of its supreme function of ensuring justice as 
between all citizens, but in particular because all 
trading companies (and the greater part of industry 
is now carried on by trading companies) enjoy their 
privileges, and especially the privilege of limited 
Uabihty, under the terms of the body of legislation 
known as the Companies Acts. 

The first step towards a fair division of the 
product of industry is to know how it is actually 
distributed now. The accounts of trading com- 
panies, having in view only the profit-making 
interests of their shareholders, are usually presented 
in such a form as to show only the general balance 
of the company's concerns, and the amounts avail- 


able for dividend. An amendment of the Com- 
panies Acts might readily provide that these 
accounts should clearly show how much of the gross 
income was spent on wages, on salaries, on commis- 
sions and other rewards for individual skill, on 
interest upon various forms of capital, on develop- 
ments and improvements, on research, and on 
other purposes, such as the provision of amenities 
or educational facilities. Such a statement would 
be of very great value for many purposes. It would 
greatly facilitate the work of Industrial Councils. It 
would remove many misapprehensions. And it 
would not be unfair to any well-conducted enterprise. 
When we pass to consider the possibility of a 
definite legal limitation of the possible return on 
capital, we are at once faced by the difficulty that 
in risky and experimental undertakings, where there 
is a hkehhood of total loss, the capital required 
will not be forthcoming unless the possibility of 
very large profits is offered as an offset to the risk 
of loss ; and it is obvious that it would be disastrous 
to discourage such enterprises, the imdertaking of 
which has been the chief virtue of the CapitaUst 
system. It is in regard to such enterprises that, in 
the public interest, the CapitaUst system ought to 
be allowed to survive with least alteration. Indeed 
it may be said in general terms that the justification 
for a limitation of profits increases in proportion 
as the capitalist's risk of total loss decreases. Where 
there is absolute security, as in State-guaranteed 
stocks, the rate of interest is not only Umited, but 
is small. Where the risk of loss is sUght, as in the 
preference shares of well-established concerns, capital 


can be obtained at a fixed but higher rate ; but in 
such cases the security against loss is obtained, and 
the limitation of the rate of interest is made possible, 
by the fact that there are ordinary shares which 
rank last for dividend, but in return have an un- 
limited claim to share in the residual profits ; and 
it is on these conditions that the capital required is 

When all this is said, however, it remains true 
that in many weU-estabUshed concerns, where the 
risk of loss is comparatively shght, capital frequently 
obtains a return out of all proportion either to the 
risk its owners run, or to the value of the service 
they render. Some famous instances of extremely 
successful enterprises in which this is so wiU at 
once occur to the reader. And in all such cases 
it is plainly just that there should be a reasonable 
limitation on the return capable of being earned by 

The difiiculty might be overcome if bona fide new 
enterprises (among which reconstructed companies 
should not count) were allowed a period of years 
without limitation of profits in which to establish 
themselves. Thereafter their ordinary shareholders 
might be limited to a defined rate of interest until 
a reserve fund had been built up equivalent in 
amount to the total capital. The reserve should 
be regarded as the property of the concern as a 
whole — not of the shareholders. It might, in bad 
years, be drawn upon for the purpose of meeting 
the liabiUties of the concern, including the payment 
of the defined rate of interest to the ordinary share- 
holders ; but the shareholders should be forbidden 


to divide the reserve among themselves. After 
the reserve had been formed, all further profits 
beyond the defined rate of interest might be divided 
between the State, the workers in the concern, and 
the ordinary shareholders, in such proportions as 
might be determined by the Act. 

It would be a necessary corollary of these pro- 
visions that there should be an absolute prohibition 
of the creation of fictitious capital : the capital 
credited to a shareholder in any concern must 
correspond to the actual contribution which he han 
made to the resources of the concern in money or 
kind. It must be made impossible, for example, 
for a company which has been paying 20 per cent, 
on the original value of its shares during the period 
of unrestricted profit-making to double the nominal 
value of the shares by a paper transaction ; for 
this would enable the shareholders to draw double 
the minimum rate of interest on the real capital 
contributed by them, after the company passed 
under the provisions for limitation of interest. 

On some such basis it could be secured that the 
share of the product of industry taken by the owners 
of capital should be limited to something reasonably 
proportionate to the risk taken and the service 
rendered by them ; while at the same time the 
community would share in exceptional prosperity in 
such a manner as not to hamper the industry ; and 
the workers of the industry would be also assured 
of some share in the results of their labours over 
and above their wages, even apart from the adoption 
of any formal profit-sharing or co-partnership 
scheme. The enactment of provisions of this order, 


which would apply to the greater part of the estab- 
lished concerns conducting industry, would go far 
to destroy the conviction, now held by many workers, 
that any extra effort expended by them will only 
increase the profits of the owners of capital. Taken 
in conjunction with a sound method of dealing with 
unemployment, it would help to remove the diffi- 
culties which stand in the way of schemes of profit- 
sharing and co-partnership. And it would provide 
at any rate a partial substitute, of a permanent 
and just character, for the Excess Profits Duty. 

In short, it would open the way to an effective 
system of partnership between the various factors 
in industry in the management of individual con- 
cerns corresponding to that outUned in the last 
section for the general control of industries as a 



We have hitherto considered the organisation of 
industry on the assumption that it is and will be 
carried on mainly by a large number of individual 
concerns more or less competing with one another ; 
and we have endeavoured to show how the principle 
of the partnership of the various factors in industry 
could be applied first in the definition of the general 
lines to be followed by all concerns engaged in a 
particular industry, and secondly in the manage- 
ment of individual concerns. But we have still 
to consider what attitude would be suggested by 
the ideas of Liberalism towards a tendency which 
has become very marked in modem industry — the 
tendency to concentrate in a very few hands the 
management of the whole or the greater part of 
the concerns engaged in a particular kind of work. 

This tendency is so widespread that it obviously 

represents a natural movement of economic forces, 

which may be evil or good or of mixed character. 

It is the instinct of Liberalism, in dealing with any 

such movement, to give it free play so far as it 

seems to lead to no evil results, but to provide 

adequate safeguards against any evils that may 

threaten to result from it. 

The movement takes two different forms. On the 


one hand an industry may be brought under the 
control of a Trust, either by the incorporation of 
aU the individual concerns in a single vast company 
or by the acquisition, by a central company, of a 
controlling interest in aU the rest which enables 
it to dictate their policy and methods ; on the other 
hand, an industry may be organised under a Cartel, 
by an agreement among the various concerns engaged 
in it, whereby, while retaining their individual 
freedom and variety of method, they combine for 
many common purposes, such as the fixing of prices, 
the organisation of the supply and fair distribution 
of raw materials, or the development of the export 

It is plain that both of these methods tend to the 
restriction of competition. The Trust, if it obtains 
a complete control over the whole industry (which 
it has never yet quite succeeded in doing even in 
America), puts an end to competition altogether ; 
the Cartel very considerably reduces it, though it 
does not do away \vith it. 

Both Trusts and Cartels are obviously open to 
grave dangers. When they get the market at their 
mercy, they are tempted to raise prices in order to 
swell their own profits at the expense of the con- 
sumer. In this respect they are open to precisely 
the same objection as the Syndicalist scheme of 
industrial organisation. The fact that on the 
Syndicahst scheme the higher prices would go to 
enrich the workers, while in the Trust they might 
be spent partly in increased wages but mainly in 
increased dividends, makes no difference so far as 
the consumer is concerned — in either case he is at 


the mercy of a monopoly ; the only difference being 
that under the Syndicalist scheme he would have 
no remedy, while he can use the powers of the State 
against the Trust or the Cartel. 

A second danger of the Trust and (in a less degree) 
of the Cartel is that they may tend to discourage 
the working out of new ideas ; though it is only fair 
to note that some Trusts have been distinguished 
by the assiduity with which they have carried on 
scientific research. The Trust is always tempted to 
crush new enterprises by unfairly underselling them. 
Even if it buys them out, it may think it most 
profitable to suppress the experiments they were 
making. The Cartel is in some degree open to the 
same temptation, though it may admit a new 
enterprise to its partnership, and its individual 
concerns have every motive for trying experiments 
on their own account. But to a greater or lesser 
degree Cartels, and still more Trusts, are open to 
the same criticism as the Socialist system of indus- 
trial organisation, that they are not favourable to 
individual experiment, though the shrewd business 
men who control them are more hkely to give a 
chance to a new idea than the Government official 
who has Uttle to gain if the idea succeeds and much 
to lose if it fails. 

On the other hand the Trust and the Cartel 
undoubtedly present advantages. They lead to 
greater economy and efficiency in organisation. 
It might seem that this would especially apply to 
the Trust. But experience seems to show that it 
is not so ; in the great American Trusts, after they 
have reached a certain magnitude, there is, instead 


of increased economy, a progressive increase in the 
cost of administration relatively to the volume of 
the business. In both cases, however, very great 
economies can obviously be made in the purchase 
and distribution of the raw materials and in the 
marketing of the product — economies of just the 
same kind as farmers, for example, can make by 
intelHgent co-operation. And these advantages are 
especially great in export trade. There are also 
some great undertakings, like the la5dng of an oil 
pipe-Une, which no body less powerful than a Trust 
could probably carry through. 

Moreover there is one great advantage attending 
the more unified organisation of an industry under 
a Trust or a Cartel which is of especial importance 
in relation to the problems discussed in the foregoing 
pages. The systematic treatment of the conditions 
of labour under an Industrial Council is likely to 
be considerably facilitated ; and, above all, the 
proper handling of the unemployment problem is 
made easier, because a Cartel or a Trust, when it 
knows that it must meet the charge of unemploy- 
ment pay, can often do a great deal to distribute 
work In such a way as to reduce unemployment to 
a minimum. 

For these reasons Liberalism, which believes in 
giving free play to aU sorts of experiments so long 
as they are not injurious, is not justified in con- 
tenting itself with the mere denunciation of Trusts 
or Cartels, or in endeavouring to prevent their 
creation, but ought to recognise that they represent 
a stage in the development of productive industry 
which may very well lead, in some trades, to real 


public advantage, provided that the obvious dangers 
which attend them can be removed. So safeguarded, 
the Cartel, at any rate, if not the Trust, might in 
some respects prove to be the means, in the industries 
to which it is appropriate, of attaining a national 
organisation of industry which will be free from the 
defects of a rigid Sociahst system, and which will 
allow room for the beneficent working of individual 

There is one Liberal principle which very power- 
fully tends to prevent the worst evils of a system of 
Trusts or Cartels, and which forms the principal 
explanation of the fact that these modes of industrial 
organisation have been less powerful in Britain than 
in Germany and America, and less mischievous 
when they have estabUshed themselves. This is 
the principle of Free Trade, which prevents any 
Trust or Cartel not possessing a natural monopoly 
from obtaining an absolute monopoly of the home 
market, by freely admitting competing goods from 
other countries. Free Trade is not enough by 
itself to form a complete safeguard, because it 
cannot prevent the formation of international 
Trusts or Cartels, or of international agreements 
between national Trusts or Cartels. But it does 
unquestionably make these operations more difficult. 
It is only in Protectionist countries that the Trust 
and the Cartel have reached their most dangerous 

Another considerable safeguard against the evils 
of the Trust or Cartel would be found in a reasonable 
scheme for the limitation of the share of trading 
profits which may be taken by capital, such as we 


have earlier suggested ; seeing that the principal 
motive of Trusts in imposing high prices is to keep 
up profits for the owners of the capital invested in 
them. And the suggestion already made that while 
the dividends of established companies should be 
limited, new enterprises should be allowed a period 
free from limitation, would form a further safeguard, 
since it would attract adventurous capital into these 
enterprises, which would often be competitive with 
the Trusts or Cartels. It would thus not only form 
a check on the raising of prices by giving favourable 
conditions to new enterprises, it would also form 
a safeguard against the second danger of the Trust, 
that of being hostile to new ideas. 

But these proposals alone are insufficient to deal 
with the possible evils of Trusts or Cartels. Specific 
legislation is required, which should not be directed 
against the formation of Trusts as such, and still 
less against the formation of Cartels for co-operation 
in bujdng and selling so far as their aim is greater 
economy and efficiency, but which should have for 
its purpose the safeguarding of the community 
against the abuse of the power such organisations 
may wield. It is a power which may be potent both 
for good and for ill, and the aim of legislation should 
be not to interfere with its potency for good, but 
to guard against its potency for ill, by prohibiting 
unfair competition which discourages enterprise, and 
the artificial enhancement of prices, which im- 
poverishes the community. 

As America has suffered most from the evils of 
Trusts because she has encouraged their rise by a 
system of high protection, she has had to study and 


experiment in the methods of preventing these 
evils on a greater scale than any other country ; 
and there is a good deal to be learned from American 
anti-Trust legislation. The chief aim of this legisla- 
tion has been to guard against unfair competition ; 
and unfair competition is held to mean the use of 
any method which excludes the rivals of the Trust 
from equal access to the consumer, such as the 
granting of rebates to customers dealing exclusively 
with the Trust, or the organisation of boycotts, or 
the reduction of selling prices in defined markets 
for the purpose of ruining a competitor. These 
methods have never reached so high a pitch in 
this country as in America — thanks mainly to the 
operation of Free Trade. But they constitute a 
danger ; and the American example shows that 
they can be dealt with by legislation. 



The object of all industrial and social policy is, 
in the eyes of Liberals, not merely to produce 
wealth, but to make a nation of free men, free to do 
their best for themselves and the community as a 
whole, free to make the most of their individual 
powers whether in the hours of their work or in 
the hours of their leisure. 

In our society as it now is this freedom does not 
exist in any sufficient degree. Men are not free to 
do their best for themselves, or to serve the com- 
munity in the production of wealth with all their 
strength. They are restrained not only by the 
defects of the existing economic system, but also 
(and probably in a higher degree) by restrictions 
which the workers have themselves devised with 
the object of remedying the defects of the economic 
order as they understand them, and which they 
impose upon their fellows with all the discipUnary 
powers that their Unions can wield. 

In many trades a man is not free to work his 
hardest even during the defined hours of labour ; it 
is his duty not to do more than the custom of the 
trade ordains, and this amount tends to diminish. 
He is forbidden, or he refuses, in many trades, to 

113 J 


accept payment in proportion to the amount of 
work he does, precisely because this would tempt 
him to exceed the prescribed output. The chief 
reason for these restrictions is in itself fine and 
altruistic. The good workman must work down to 
the level of the poorer workman in order that the 
poorer workman may not be penalised and also in 
order that the amount of employment available 
may be spread round the greatest number of workers. 
Unhappily this is a very false calculation. When a 
man takes two days to do what he could do in one, 
the product is not onlj^ less abundant, but dearer ; 
and because it is dearer less of it is bought. More- 
over the goods produced under such a system cannot 
compete with goods produced in other countries 
where these rules do not hold. Export markets are 
therefore lost ; and unemplo^-ment is increased. 
The community is deprived of that increase in the 
amount of wealth available for distribution which is 
the first pre-requisite of a better order of things. 
There can be no idea more demoralising than the 
idea that it is a man's duty not to do his best ; no 
organisation more ruinous than one which aims at 
preventing a man from doing his best ; nothing more 
destructive of liberty in any fine sense of the term. 

Nor are these the only restrictions on the freedom 
of the worker which the present order imposes. A 
man is not free to transfer his work from one industry 
to another, even if he has ability to take up the new 
work. When the whole country is short of houses, and 
thousands of unemployed men are eager to put their 
hands to the work, they are not permitted to render 
this indispensable service, or to earn a living for 


themselves, because the Builders' Unions fear that 
any large increase of the number of workers in their 
trade might mean unemployment for themselves at 
some later time. 

Finally men are not free to do any work, even 
the simplest, that is not officially recognised as 
belonging to their craft. This restriction is, of 
course, often an impediment to production. But 
far more serious are its effects upon the men them- 
selves. It is often said that macliinery has mechan 
ised labour and reduced it to deadly uniformity, 
that it has starved individuality by depriving men 
of variety of occupation. These restrictions tend 
in precisely the same direction ; they tend to weaken 
the readiness and adaptability of the men to whom 
they apply ; to reduce them to machines. 

Taken together this series of restrictions almost 
amounts to the establishment of an industrial caste 
system of a very elaborate kind. And there is 
nothing more narrowing, more deadening, more 
destructive of liberty than a rigid system of caste. 
While in America men move freely and easily from 
one occupation to another, and enrich their experi- 
ence and individuality by doing so, saving them- 
selves from being the slaves of a changeless routine, 
in England we are drifting rapidly into a system 
like that which has frozen the peoples of India into 
stagnation ; and it is coming about that a man is 
fixed for life into the occupation upon which he 
enters in his boyhood. 

How are our people to be saved from this destruc- 
tion of their natural liberties ? Not by any Acts of 
Parliament or other devices of authority ; for these 

I 2 


restraints upon liberty have been developed by the 
people themselves, as protective devices against 
dangers which they genuinely feared, and had 
reason to fear. They are in themselves so un- 
natural and so obviously deleterious that reasonable 
men would never adopt them unless under the 
impulsion of very powerful motives ; if any such 
restrictions were imposed by external authority, 
even for the best of reasons, they would be resisted 
with passion. They can only last while the motives 
which have led to their establishment remain strong. 
And the only way to get rid of them is to get rid 
of the causes which have led to them. 

These causes are two. The first is the deep- 
rooted belief of the worker that the whole industrial 
process exists for the purpose of making profits for 
the employer, or at all events that it is turned to 
that sole end. For this purpose, he believes, labour 
is quite ruthlessly exploited ; and therefore he 
holds that his first dut}^ to himself and his fellows 
is to organise for resistance, and to prevent the 
employer getting more than can be helped. It is 
all very well to say that this is a shallow doctrinaire 
view of the purpose and working of the industrial 
process. The unfortunate thing is that there is a 
great deal in the existing order which seems to 
justify this view. 

The second cause is the dread of unemployment, 
and the determination of the worker to stand 
loyally by his fellows in reducing the danger of 
unemployment to a minimum even at the cost of 
sacrificing chances of making money for himself. 
No one can fail to appreciate the generosity of this 


attitude, even if he feels that the methods adopted 
to remedy the evil tend to make it worse. 

There is no chance of getting rid of the restrictions 
not merely upon output but upon the liberty and 
individuality of thousands of good men, unless we 
can get rid of the grounds of the beliefs which have 
led to their establishment. 

In order to do this we must ( 1 ) find a real remedy 
for unemployment, of such a kind as to make the 
workman feel that when work is slack he will be 
safeguarded against the loss of his livelihood and 
against the bitterness of being merely turned adrift. 
We must (2) substitute co-operation for conflict in 
the determination of the conditions of labour. We 
must (3) ensure that each of the principal factors in 
industry has a share both in the control of the 
industry and in the distribution of the product 
appropriate to the part it plays in production. We 
must (4) in particular ensure that the owners of 
capital shall not be enabled to act as the owners of 
an industry or to arrogate to themselves all its 
residual product. If we can do these things, or set 
on foot processes of development which can demon- 
strably be made, with good will, to lead to these 
results, the fears and suspicions, often fully justified, 
which have led to the establishment of restraints 
upon liberty will be gradually conjured away ; and 
as they dissipate, the natural love of Englishmen for 
freedom will bring about the abandonment of these 

But it is for the workers themselves to regain the 
freedom which they have voluntarily renounced ; it 
is for the community to insist and to secure that con- 


ditions shall be brought into being which will make 
them feel that the renunciation of their freedom is 
no longer needed. All the preceding pages have 
been mainly devoted to an attempt to show not 
only how greater liberty may be attained, but how 
the conditions may be created which will help men 
to realise, whether they be employers or workmen, 
what Liberty means ; not only what are its rights, 
but what are its duties. 



In the foregoing sections we have been primarily 
concerned to show how the principle of an organised 
partnership of the various factors in industry could 
be applied in the working of those industrial concerns 
which are privately organised, which compete with 
one another, and which rely upon individual energy 
and skill in management and in the working-out of 
new processes. We have throughout assumed that 
this will continue to be the normal method of 
carrying on the greater part of the nation's industrial 
activity. For, as we have repeatedly insisted, 
Liberalism holds that in general the best results 
can be obtained by giving the freest vent to private 
enterprise, subject only to such restrictions as may 
be necessary to secure justice and freedom for every- 
one engaged in industry. And for this reason, 
even in working out the principle of partnership, 
we have contemplated an infinite variety of method 
and experiment, in order that, as conditions change, 
each form of activity may find the mode of organisa- 
tion best fitted for it. 

But we have also repeatedly recognised that 
several other forms of industrial organisation may 
exist alongside the privately organised firm or 



trading company, notably organisations controlled 
by and in the interests of the consumers, like the 
co-operative societies, and public services owned 
and controlled by the public, whether on the 
municipal or the national scale. It is needless to 
discuss these alternative forms in detail : though it 
should be noted that all of them ought gradually 
to be brought under the system of general regula- 
tion through Industrial Councils described in 
Section IX. It is, however, necessary to consider 
with closer attention the form of industrial organisa- 
tion known as " Nationalisation," that is to say, 
the ownership and unified control of a whole 
industry by or on behalf of the community as a 

Herein lies the main difference between Liberalism 
and Socialism. Socialism asserts and Liberalism 
denies that this is the only morally right form of 
industrial organisation, and that it is economically 
or socially the most advantageous in the majority 
of cases. The Liberal holds that no moral question 
is involved, and that the question should not be 
discussed under the terms of abstract doctrinaire 
theories, but as a problem of practical efficiency 
and advisabihty. If it can be demonstrated with 
reasonable certainty that a particular industry 
needs this form of organisation and will thrive best 
under it, without detriment to the interests of the 
community as a whole, there is nothing in the ideas 
of Liberalism which would dictate opposition. But 
the case must be made good in each instance. 

Assuming, however, that a particular industry is 
to be brought under national ownership and unified 


control, the principles of Liberalism, as we have 
defined them, would dictate certain provisos as to 
the methods in which the industry is to be managed. 

In the first place, the responsibility for direct 
management must not be thrust upon the ordinary 
machinery of government, the Cabinet and Parlia- 
ment. One main reason for this proviso we have 
already more than once laid down : the State 
must be left free to perform its primary function 
of safeguarding the rights and liberties of all citizens 
against abuses of power. We need not dwell 
further upon this point. 

But there is another and more practical reason 
for making this proviso. Our system of government 
is — and, indeed, any system of government suitable 
for general national purposes must be — extremely 
ill-adapted for the performance of such functions 
as the management of a great industry. Our system 
of government, which is in many ways admirably 
designed for the conduct of national affairs, places 
the control of these affairs in the hands of a Cabinet 
whose members are jointly responsible to, and 
subject to the criticism of, Parliament ; and these 
Ministers work through an elaborately graded Civil 
Service or Bureaucracy. All the three elements in 
this system — Parliament, Cabinet, and Bureaucracy 
— while well fitted for political work are extremely 
ill-fitted for industrial work. 

A general representative body such as Parlia- 
ment, whose members are elected on the gi'ound of 
their opinions on questions of home and foreign 
policy, may very well be able to say what is the 
mind of the nation on broad questions of industrial 


policy, such as the desirabiHty or otherwise of 
nationalising the coal-mines ; but it is wholly 
unfitted to discuss with knowledge or to control 
with wisdom the practical daily working of a great 

There could be no worse head for a great industrial 
concern than a Minister who is selected on the 
ground of his political services, and who is at any 
moment liable to be turned out of office because 
(for example) Parliament disapproves of the Irish 
poHcy of the Grovernment of which he is a member. 
Yet this must happen because of the doctrine of the 
joint responsibility of the whole Cabinet for the 
policy of government ; and the principle of joint 
responsibihty is of the very highest importance and 
value in the political sphere, and must not be im- 
paired. Even as things are, it is absurd enough 
that an efficient Postmaster-Greneral should be 
dismissed on a question of foreign policy or other 
totally irrelevant subject. These absurdities are 
due to the fact that we have already thrust upon 
Parliament and the Cabinet functions which are 
not appropriate to them. That foolish and destruc- 
tive process must not be carried further. The whole 
system of government would be turned to derision 
if the heads of a series of great industries were 
placed in this position, or were selected on political 

Finally the traditions of the public service, which 
produce admirable results in the political sphere, do 
not cultivate the kinds of administrative faculty 
which are needed in a great industrial concern. 
Security of tenure, promotion by seniority, a strict 


observance of service rules, a meticulous care about 
halfpennies in the handling of public money, the 
habit of referring questions from subordinates to 
superiors through a long chain of precise and 
methodical officers, have helped to produce an admir- 
ably judicial, cautious, exact and impartial spirit 
which is the glory of our public service. But these 
quahties are different from, and in practice in- 
compatible with, the vigour and initiative, the 
readiness to assume responsibility and to make 
swift decisions, which are needed for the successful 
conduct of a great industry. 

For these reasons Liberalism cannot assent to 
the placing of any great industry under the direct 
control of the ordinary machinery of national 
government. But equally it cannot consent to one 
of the possible alternatives : the placing of such 
an industry under the exclusive or predominant 
control of the producers in the industry, whether 
capital, management, labour, or any two or more 
of them in combination. For to do this would be 
to create a vast monopoly against which consumers 
and the community would be defenceless. An 
industrial enterprise may legitimately be controlled 
by the producers, or by any group of them, when 
it is only one among many competing concerns. 
But when it is organised on a monopoly basis it is 
essential that the controlling voice should rest with 
spokesmen of the community and of the consumers. 
This need not, of course, exclude the producers 
from a share in control ; and in any event the 
interests of the producers need to be safeguarded 
by means of an Industrial Council or other similar 


device. But it does definitely exclude the form of 
control contemplated by the Syndicalists and by the 
Guild Socialists — a form of control which was 
evidently in the minds of some of the advocates 
of nationaUsation of the mines. Syndicahsm as 
well as Bureaucracy must be avoided in any scheme 
of national control. 

There remains, however, a method of organisation 
for nationaUsed industries which is free from all 
these dangers. It has already been successfully 
employed in democratic Australia. Parliament, 
having decided that an industry must be brought 
under national ownership and unified control, can 
set up a special Commission or Board for the purpose, 
leave it very free to do its work, and hold it respon- 
sible for the results. ParHament can define the 
general principles on which the industry is to be 
organised, the number and powers of the Board, 
its relation to subordinate organisations, the modes 
in which its members are to be appointed, and the 
length of time for which they are to hold office. 

Under such a system Parliament would naturally 
have laid before it regular reports on the progress 
of the industry, and it would have the power of 
requiring the removal of any or all of the members 
of the Board in case of serious misconduct. But the 
Board would be responsible ; it would not be liable 
to have its work interfered with by snatch votes, 
or by the decisions of a vote-hunting Cabinet. It 
would not be a part of Government, but a distinct 
body, solely concerned to run the industry as 
efficiently as possible ; its officers would not be 
under the ordinary rules of the Civil Service, but 


could be appointed and dismissed in the manner 
found most conducive to efl&ciency. Parliament and 
Government would stand outside, free to criticise the 
Board's proceedings, without feeUng that they were 
endangering the existence of the Ministry ; free also 
to protect consumers on the one hand, workpeople 
on the other, against any abuse of the powers of the 

An industry thus organised would not work 
primarily for profit ; any profits which it might 
realise would be dealt with as Parliament might 
determine. It would of course be charged with the 
payment of interest on the capital invested in it 
at a fixed rate. Unified control on such a plan 
might lead to real economies, as well as to other 
advantages ; though the experience of the big 
American Trusts shows that when an industrial 
concern grows beyond a certain magnitude its 
administrative expenses increase at a dispropor- 
tionately rapid rate ; and it is probable that the 
loss of the stimulus due to rivalry would in many 
cases at least balance the superior efl&ciency obtained 
by unified control. 

To meet this difficulty, to avoid the deadening 
influence of a highly centralised control, and at the 
same time to secure, so far as possible, the variety 
of method and the freedom for experiment which 
Liberalism values, a further proviso may be sug- 
gested. This is, that in any nationalised industry 
the greatest practicable amount of local decentraUsa- 
tion should be encouraged ; and the local adminis- 
trative bodies set up for such purposes — whether 
specially created or attached to municipal authorities 


— should be allowed such a degree of freedom of 
action as will encourage them to make distinctive 
experiments. This is the method we have adopted 
in the administration of the national system of 
education. It is equally capable of being applied 
in the sphere of industry, and is, indeed, already 
suggested for the administration of the national 
service of electric power. 

Under such conditions, a nationalised industry 
might be worked with a reasonable degree of 
efficiency and freedom. Such a system would 
avoid the ScyUa of bureaucracy and iU-informed 
parUamentary meddUng on the one hand, and the 
Charybdis of a producers' monopoly on the other. 
It is only on some such basis that the beUever in 
Liberal ideas should be prepared to advocate 
national ownership and control in any industry. 
And there is a great deal to be said in favour of 
transferring to an organisation of this type the 
management of the postal and telephone services, 
which have not profited by parliamentary and 
ministerial control. 

Assuming that any nationalised industry would 
be conducted in this sort of way, and that the 
constitution of the controlling Board would in 
each case be so defined as to meet the special needs 
of the industry concerned, we have next to ask 
what industries, if any, would be best conducted 
thus, and on what principles a distinction should 
be drawn between one industry and another. 

There is a strong a priori ground for national 
ownership and unified control in the ease of any 
industry (a) which is a monopoly, (6) the conduct 


of which directly and immediately affects all citizens, 
(c) which, for the foregoing reasons, is necessarily in 
any case brought to a large extent under the control 
of Government, (d) in which unified control would 
demonstrably lead to definite improvements or 
economies, and (e) which is so well developed that 
its success does not primarily depend upon the 
constant expenditure of individual ingenuity and 
inventiveness, or upon the working-out of new 

These are fairly clear criteria ; and in the case 
of any industry which satisfies all, or nearly all, 
these conditions it may fairly be said that the 
presumption ought to be in favour of national 
ownership and unified control. 

There are certain industries of very great impor- 
tance which seem to satisfy all these criteria ; and 
in these cases the Liberal attitude would be that, 
while each case should be carefully investigated on 
its own merits, the presumption is in favour of a 
scheme of national ownership, subject to the pro- 
visos already laid down. The most outstanding, 
though not the only, industries in this category are 
the railways and the coal-mines. 

The railway system is, in the first place, essentially 
a monopoly. It is not subject to foreign competi- 
tion ; and although the existence of a number of 
distinct privately-owned companies has been de- 
fended on the ground that their competition ensured 
good service, the competition is in most parts of 
the country unreal, and the accepted devices for 
improving the service involve the ending of such 
competition as exists. In the second place the 


working of the railway system affects the life of 
every citizen every day. In the third place, for 
these very reasons the railwaj'^s have always, since 
the date of their foundation, been subject to a 
greater degree of State regulation and control than 
any other industry. During the war they were in 
effect brought under direct Government control ; 
and now that the war is over it is found impossible 
to allow them to regain even that modest degree of 
independence which they used to enjoy ; an 
elaborate and costly Ministry of Transport having 
been set up primarily for the purpose of controlling 
them. In the fourth place, it is unquestionable that 
a great deal of waste results from the multitude of 
administrative offices, and that a more efficient 
service could be provided if the system were treated 
as a single whole. Finally, railway work, though it 
is highly skilled and demands great administrative 
ability, is past the experimental stage and is well 
standardised ; though it is probable that a new 
experimental period lies before us. The reasons 
in favour of a unified national railway system are 
thus very strong indeed. 

The arguments in favour of national ownership 
of the coal industry stand upon a rather different 
footing. It cannot strictly be said that the industry 
has a necessary monopoly even of the home-market. 
But the coal industry is the very foundation of all 
the rest. British prosperity rests mainly upon coal, 
and when British coal ceases to supply the whole 
needs of the home-market, not to speak of the 
export-market, one of the main pillars of our 
prosperity will have been destroyed. But our 


coal-supplies are a rapidly wasting asset, and it is 
supremely important that they should not be waste- 
fully used. In this industry, because of its peculiar 
conditions, the existence of a number of distinct 
coal-getting companies working for profit is neces- 
sarily wasteful, and this for a reason which does 
not apply in other industries. A private company 
cannot afford to work a mine when it ceases to be 
profitable, even though it is far from being worked 
out ; and mines once abandoned can seldom be 
reopened. But it is to the national interest that 
they should be worked as long as possible. There 
are mines working to-day which would have been 
abandoned but for the fact that under the scheme 
of control set up during the war the richer mines 
are made to pay for the poorer mines. For these 
reasons it has been found necessary to keep in being 
the system of control initiated during the war ; 
and though this system of control, being a hybrid 
between private and public management, is by 
common consent exasperating, complicated, and 
unsatisfactory, it cannot be dispensed with. There 
can be no return to the purely private system which 
existed before the war. Some kind of national 
system has to be set up ; and under these circum- 
stances it may reasonably be urged that it is best 
to make a clean departure, and to get rid of the 
existing confusion and overlapping. 

The reasons for nationalisation of the coal 
industry are thus on the surface strong. And these 
reasons are enforced by two others, not directly 
arising from the working of the industry itself. 
One is that it has already been decided that the 



supply of electric power must be organised on a 
national basis ; and the supply of electric power 
depends upon coal. The other is that a Royal 
Commission has already reported, by a majority, in 
favour of national ownership, and that the majority 
of the workers in the mines have clearly made up 
their minds, whether rightly or wrongly, that they 
will not work zealously under any other system. 
These reasons should not be decisive unless the 
arguments drawn from the actual working of the 
industry were very cogent ; but they rightly have 
great weight as reinforcements of these arguments. 

The opposition to national ownership is main- 
tained by arguments to which all Liberals are bound 
to attach great weight ; one is that nationalisation 
must involve either the inefficiency of parUamentary 
and bureaucratic management, or the tyranny of a 
producers' monopoly. These are the twin dangers 
of nationalisation in any industry against which 
LiberaUsm must always be on guard. But we have 
already seen that it is possible to devise a system 
of management which avoids both of these dangers, 
and that they should, therefore, not be allowed to 
stand in the way if the reasons in favour of national 
ownership and unified control are convincing. 

The second main argument rests on a stronger 
ground. It is urged that, just as the development 
of a new process or a new idea in industry which 
would be apt to be coldly regarded by a public 
department administering public funds is given a 
chance when the owner of capital is encouraged 
to take the risk of loss in the hope of making large 
profits, so the opening of new mines and the intro- 


duction of new methods are due to the courage of the 
capitalist in taking the risk of total loss. So far as 
concerns the introduction of new processes, there 
is force in this contention. But so far as concerns 
the opening-up of new mines, the argument surely 
possesses no validity. The opening-up of new 
pits, and the facing of the risk that a pit may be 
sunk in the wrong place, is a matter of daily necessity, 
almost of routine, in the coal industry ; the develop- 
ment of new ideas in industry is not in the same way 
a matter of daily necessity for the continuance of 
the industry. Many industrial concerns get along 
very well without themselves trying new processes : 
they can adopt those that have been proved suc- 
cessful. But mining companies must open new 
pits ; they can't wait to adopt those that have been 
proved successful. Indeed, the risk that attends the 
opening of new pits, just because it is so unavoidable, 
is a risk that should be distributed over the whole 

A third argument, of a more practical kind, is 
based upon the fact that many mines are worked 
in close connexion with other industries, such as 
steel-works, and are owned by the concerns to which 
these works belong. It would often be both difficult 
and disadvantageous to withdraw these mines from 
their present management and place them under a 
distinct control. But this difficulty could readily 
be met if the Board which was placed in control 
of the nationaUsed mines were empowered to lease 
particular mines, subject to the condition that they 
should be worked under similar rules to those adopted 
by the Board. 

K 2 


The reasons for national ownership and control of 
the coal-mines seem therefore to be almost as 
strong, though on different grounds, as those for 
national ownership and control of the railwaj^^s. 
And on its own principles LiberaUsm would there- 
fore be led to assume that the presumption is in 
favour of a national system in both of these cases, 
subject always to the provisos that the manage- 
ment is neither brought under direct ministerial 
and parUamentary control, nor turned into a pro- 
ducers' monopoly, but that in each case a separate 
organisation is set up, suitable to the needs of each 
industry. In arriving at this conclusion LiberaUsm 
does not in the least depart from its behef in variety 
of industrial methods, or from its conviction that 
over the greater part of the field of industry private 
enterprise is essential for the adequate development 
of national wealth. 

But this conclusion is still a theoretical one ; and 
before the question is brought to a practical issue, 
it is necessary to examine with care the financial 
aspects of the problem, and to determine whether 
from this point of view the acquisition of these 
great industries wiU be advantageous to the com- 
munity. We need not, of course, be deterred by the 
alleged difficulty of raising the capital required to 
buy out the present owners of railways and coal- 
mines : they would simply be given national scrip 
in return for their existing scrip, on a basis to be 
determined. The sole problem is to determine what 
this basis should be. Many people hold that the 
railways are a rapidly depreciating asset, because 
of the growing competition of road-borne transport. 


Many hold that the coal-mines are also a depreciating 
asset, not only because of the approaching exhaus- 
tion of our coal-supphes, but still more because the 
very high price of British coal must necessarily 
lead to the development of other sources of coal- 
supply, and alternative forms of power. If this 
view is sound, and if it becomes prevalent, it will 
presently become impossible for the privately- 
owned railways and coal-mines to obtain the capital 
necessary for working them ; and since the time is 
far distant when we can dispense with either, the 
State will have to step in to assist them. These 
considerations are important, and ought to be 
carefully weighed, and any scheme for nationalising 
railways or coal-mines ought to pay due regard to 
them. But they do not invahdate the considera- 
tions already discussed. 

It is needless to pursue the argument into other 
fields, or to discuss the cases of canals, or forests, or 
banking, or insurance, or the Uquor-traffic. Each 
must be considered on its own merits ; and enough 
has been said to indicate the point of view from 
which LiberaUsm is Ukely to approach the discussion 
of projects of national ownership and unified control. 

But there is one fundamental question of this 
order which has still to be considered : the question 
of the land, which stands by itself, though its 
bearings upon industrial policy are intimate and 



No tenable system of national economic policy 
can be put forward which does not clearly define 
the principles upon which the use of and access to 
land should be determined ; for land is the founda- 
tion of all productive activity. 

The system of unrestricted private ownership has 
placed in the hands of a small class of landowners 
the power to dictate the conditions upon which land 
may be used, and to hold to ransom communities 
which, since they cannot thrive or prosper without 
access to it, must submit to whatever terms the 
owners of the land impose ; and the way in which 
this system has actually worked is very largely 
responsible for the cramped and unhealthy con- 
dition of our towns. Moreover the development of 
all mining industries, of forestry, and above all of 
agriculture, which is still, even in England, the 
greatest of national industries, is made to depend 
upon the good will, intelligence, and resources of 
owners of land. In a less degree, but still really, 
the development of convenient communications and 
the proper employment of sources of water-supply 
and water-power are dependent upon the same 
uncertain factors. An unrestricted private control 



over this greatest and most fundamental of all 
natural monopolies, this governing factor in the 
conduct of all activities, thus places in the hands 
of those who wield it a degree of irresponsible power 
over the lives and fortunes of their fellows which no 
free people can be expected to tolerate. 

What is the attitude of Liberalism on this funda- 
mental issue ? Historically the outstanding feature 
in modern LiberaUsm has been its struggle against 
the power of a landowning oUgarchy, and against 
the theory (which once dominated our national Hfe) 
that " those who own the land must rule the land." 
The monopoly of political power once enjoyed by 
the landowning class has been destroyed by Liberal- 
ism ; the economic ascendancy upon which this 
poUtical power rested has been greatly weakened. 
But it still constitutes a serious restraint upon the 
development of a genuinely free community and 
upon the expansion of its productive activity. 

No Liberal will deny that it is the unquestionable 
and inalienable right of the community as a whole 
to determine how the land is to be used. In pure 
theory there is no sphere in which the argument for 
public ownership is so strong. Unlike capital, land 
is not created by individual effort and thrift. In 
its " prairie " condition it is " the gift of God to man." 
Even its improved value is only in part due to the 
efforts or expenditure of the owner and his pre- 
decessors ; it is due far more largely to the activity 
of the community as a whole, in creating communica- 
tions, opening markets, and bringing population, 
whose presence is necessary to give the land its 
value. Moreover it is obvious that if all land were 


in public ownership the difficulties in the way of 
dealing with the growth of towns, the planting of 
forests, the organisation of water - supply, the 
development of communications, would be much 
more easily dealt with than is the case when every 
patch of land needed for these purposes has to be 
acquired after tedious negotiations with many 
owners, and often at an unreasonable price. 

Should Liberalism, then, place the public owner- 
ship of aU land among the objects of its policy, as 
one of the foundations of a better economic order ? 
As in every other similar case, the question must 
be dealt with as a practical one, on a balance of 
advantages and disadvantages. If it can be proved 
that, our society being what it is, public ownership 
affords the best means of making use of the resources 
of the land, and the best way of safeguarding the 
liberties of the community, there is no more to be 
said. But there is a good deal on both sides of this 

To begin with, it is undeniable that the pride of 
ownership and the sense of absolute security in 
possession have proved to be, in a multitude of 
instances, among the most potent means of stimu- 
lating industry, thrift, and self-respect. In all 
coimtries where a landowning peasantry exists, as in 
Ireland or France, these motives are extraordinarily 
powerful ; and in these countries any proposal of 
State ownership of land would be violently resisted. 
During the last three years we have seen how, in 
Russia, the uncompromising Communist theories of 
the Bolsheviks had to give way to the passionate 
eagerness of the peasants to own their loved acres ; 


even the Bolsheviks have had to accept, though with 
a bad grace, the establishment of a system of private 
ownership of land. We are not entitled to dis- 
regard a feeUng so strong, so world-wide, and so 
capable of producing fine results. For that reason 
there are many thoughtful and public -spirited men 
who, while recognising that land stands upon a 
different footing from capital, nevertheless hold 
that in the case of land, as of capital, a very wide 
diffusion of private ownership is better for the 
community and better for the individual than any 
system of public ownership. 

These considerations are not in themselves con- 
clusive. It may reasonably be urged that a tenant 
under public ownership, if he were given security 
of tenure, would really be better off than a proprietor, 
because he could more easily acquire his land and 
more easily dispose of it ; while enjoying secure 
possession he would be saved from that slavery to 
the land which often marks the peasant-owner in 
countries where small properties are common. For 
that reason, in the movement for the creation of 
small holdings. Liberal poUcy has generally favoured 
tenancy under pubUc ownership, while Conservative 
policy has favoured outright proprietorship. It 
may also be urged that the scientific development of 
agriculture is in fact discouraged by a system of 
small properties whose owners cannot carry on 
large-scale cultivation, or expend adequate capital 
on their land ; the small proprietors, who were 
numerous in eighteenth-century England, had to be 
swept aside before scientific agriculture could win 
its triumphs. Finally it may be urged that, if large 


properties in land offer obstacles to public improve- 
ments, the existence of a very large number of 
small properties would offer still greater obstacles. 

The arguments, therefore, for and against private 
property in land seem to be balanced. But when 
we come to consider whether it is desirable to under- 
take a definite programme of land-nationalisation 
the fact that there is so even a balance of argument, 
and that there is a very great body of real and 
sincere feeUng in favour of private ownership, 
constitutes a material factor. The operation of 
nationalising the land by one sweeping enactment 
would evidently be a gigantic undertaking, certain 
to lead to conflict, dislocation, and bitterness on a 
very large scale ; and this at a time when the nation 
is already overstrained, and when a great complex 
of problems awaiting solution have already disturbed 
the normal placidity of our people. 

It is, indeed, a fact of vital importance, which 
ought not to be disregarded, that the community 
has in fact permitted during many centuries the 
upgrowth of an all but universal system of private 
ownership, with which all sorts of traditions and 
sentiments, whose strength and value no wise man 
will underestimate, are closely intertAvined ; and 
that it has encouraged the frequent transfer of 
ownership, the investment of savings and the 
exercise of private effort upon the land, to such an 
extent that there is now an inextricable tangle of 
rights and claims which cannot merely be brushed 
aside. Moreover, during these last years of rapid 
change, a transfer of ownership has been taking 
place on a very great scale. Farmers have been 
buying their farms ; great estates have been broken 


up ; quite humble people have, in very large num- 
bers, sunk the savings of their lifetime in the 
purchase of houses and patches of land. Since the 
war the number of owners of land in this country 
has been very largely increased ; and this process 
has almost certainly been accompanied by a growth 
of the pride and sentiment of ownership. 

In face of all these facts, the Liberal, unwilling to 
allow himself to be dominated by abstractions, will 
conclude that, since there is much to be said, from 
different points of view, both for public and for 
private ownership, it is desirable that both should 
co-exist, each yielding its own advantages, just as, 
in the field of industry, a great variety of method 
and experiment should be encouraged. 

The Liberal will the more readily come to this 
conclusion because the main evils which have 
attached to private ownership can in fact be largely 
or wholly remedied without recourse to so heroic an 
expedient as the immediate nationalisation of all 
land ; while at the same time the purposes for which 
public ownership would be most valuable can be 
met by a system of compulsory purchase on reason- 
able terms. 

The two chief drawbacks which have attended the 
private ownership of land are (1) that the owners of 
land, especially in the neighbourhood of large towns, 
reap the benefits of the increase of the value of the 
land which is due to the activities of the community ; 
and (2) that they are in a position either to stop 
healthy developments and improvements by refusing 
to sell their land, or to name their own terms for 
permitting them to take place. 

Liberalism is deeply committed to proposals for 


removing these evils. Before the war a Liberal 
Government and Parliament introduced measures 
having these ends in view — a system of land taxa- 
tion, and especially of duties on " unearned incre- 
ment," together with a system of land- valuation to 
determine the basis on which these taxes, and also 
rates, should be paid. The proposals, which were 
greatly altered during their passage through the 
House of Commons, and in their final form repre- 
sented more or less of a compromise, were only 
partially successful ; largely because the process of 
valuation was necessarily slow and expensive. In 
1920 the whole system has been swept away by a 
Conservative Chancellor of the Exchequer, with the 
consent of its principal author, now Prime Minister. 
No substitute has been provided, or even suggested 
for the future. 

In the eyes of most Liberals this is a disastrous 
retrogression ; in the eyes of many, a betrayal. In 
any case Liberalism is pledged to find a new and 
more effective means of securing the ends we have 

It is not our business here to define the terms of 
legislation in a complex and difficult question. But 
in case there are any who imagine that the events 
of this year have proved the impracticability of any 
such reform, it may be worth while to indicate one 
way in which the result desired might be compara- 
tively easily attained. 

Let every landowner be required, within a defined 
period, to assess the value of his own land, apart 
from the buildings on it, and of each parcel of it : 
that will overcome the difficulty arising from the 
slowness of Government valuation. Let this valua- 


tion be accepted without question. On this basis 
the landowner will pay his rates ; on this basis he 
will be taxed ; and at this price the community can 
purchase his land when it is needed for communal 
purposes. When the land changes hands either by 
inheritance or by sale to a private purchaser, there 
will be a new valuation, determined by the price 
obtained or by the valuation for probate. Any 
change in value as compared with the owner's 
original valuation will be due to one or more of 
three causes : to the expenditure of capital on the 
land ; or to an alteration in the value of money ; 
or to " unearned increment " due to the activities 
of the community. Let the changes in value due 
to the first two causes be allowed for, and any 
increase that remains will represent " unearned 
increment." The community may justly take the 
whole or any part of this increment ; and it is for 
the community to decide how much of it it will 
take, and in what way. On the other hand there 
may be a " decrement," and in that case the new 
owner of the land is entitled to have his valuation 
for purposes of rates and taxes revised accordingly. 

With the provisions for the valuation and taxation 
of land should be coupled a Land Purchase Act, 
empowering any public authority, subject to reason- 
able conditions, to buy land required for public 
purposes at the price fixed according to the official 
valuation, on which rates and taxes are paid, or, 
in the case of urban areas, to acquire at this price 
whatever land it requires for purposes of develop- 
ment. This power of compulsory purchase would, 
of course, be limited to public authorities requiring 
land for public purposes. It Avould enable a Town 


Council to buy the land necessary tor the reconstruc- 
tion of a slum ; a County Council to buy the land 
needed for small holdings or experimental farms ; 
the Admiralty to buy the land needed for a new 
dockyard ; the Railway Board to buy the land 
needed for an extension ; it might be extended to 
allow a University to buy the land needed for a 
laboratory, or for other such purposes. But in any 
case the land required would be obtained at a just 
and reasonable figure, to which would only have to 
be added, in many cases, some compensation for 
disturbance, payable to the tenant. 

There is, however, another difficulty which stands 
in the way of large proposals for public improve- 
ment. When a Town Council wants to clear out a 
slum, or a County Council is faced by a large demand 
for the creation of small holdings, it has somehow to 
borrow the money required, and it is often difficult 
to do this. This difficulty would be overcome if, 
instead of being paid in cash, the landowner were 
paid in bonds issued by the Treasury. He would 
thus get a Government security bearing a fixed rate 
of interest. The interest on the bonds thus issued 
should be a charge on the public authority which 
had obtained the land, but it should pay sUghtly 
more than the actual rate paid on the bonds, in 
order to provide a sinking fund by means of which 
the capital could be gradually paid oj6f. 

On this basis it would be possible for public 
authorities, without either secrecy or delay, and 
without any elaborate financial operations, to 
acquire at a reasonable price possession of any land 
necessary for public improvements, subject only to 
such restrictions, in the interests of justice and of 


sound finance, as the State might impose. The 
land thus acquired should remain permanently in 
public ownership ; its alienation should be prohibited. 

It should be noted that, in general, it would be 
the land worst treated under private ownership 
which would be thus acquired. The good landlord, 
who spent time, thought, and money on his land, 
who treated his tenants with understanding and 
generosity, and who felt a sense of responsibility for 
the use of the power vested in him, would usually 
be left undisturbed. There are many such land- 
lords ; their work has provided, in a large degree, 
the justification for the existing system ; and there 
are many who think that their individual and 
personal interest, their sense of obligation and of 
the duty of public service, their knowledge of and 
long-established friendliness with their tenants, are 
factors making for good-fellowship and for good 
work which would not easily be replaced by a 
bureaucratic administration under a scheme of land- 
nationalisation. These qualities, where they exist, 
are in the highest degree worthy of preservation. 

A scheme which contemplates and renders possible 
their preservation, which puts a premium on the 
good landlord and penalises the bad, and which 
thus retains a valuable element of personal and 
individual service and effort, while at the same time 
it removes the evils that have resulted from private 
ownership in land, and gives to the community the 
power to protect its liberty without unduly en- 
larging the sphere of State interference, is wholly 
in accord with the fundamental ideas of Liberalism. 



There remains an aspect of land policy yet more 
important than the foregoing : the development of 
the resources of the land, and the establishment of 
British agriculture in secure prosperity. 

That this must form an essential element in a 
sane national policy has been made pretty obvious 
by the experience of the last few years. Before the 
war we were producing less than half of the food- 
stuffs necessary for our population, and only one-fifth 
of our staple foodstuff, wheat. In the same years 
Germany and Denmark were producing double the 
amount of foodstuffs per cultivated acre that we 
were ; and the soil of these islands is not naturally 
less fertile, but more fertile, than that of Germany 
and Denmark. If we produced as much per acre as 
Germany and Denmark, we should get from our own 
soil nearly enough to feed our population, though not 
enough wheat. Our failure to do so means that 
we are failing to utilise fully the greatest and the 
most stable source of our wealth, and almost the 
only one that is wholly under our own control ; 
and, what is yet more important, we are failing to 
make use of one of the best means of producing a 
strong and healthy population. 

During the war, this failure nearly brought us to 



utter ruin. The effort we made during the war 
(when England was the only European country 
which materially increased its production of food- 
stuffs) showed that it was possible to bring about a 
great improvement, even in face of the facts that 
our agricultural population has terribly shrunk in 
numbers during the last generation, that it was 
heavily depleted by the calls of the Army, and that 
the highly-skilled profession of agriculture cannot 
be successfully carried on by amateurs, however 
zealous. It is our plain duty to make sure that we 
are not again reduced to the same predicament. 

There are, it is true, some people — including some 
eminent Liberals — who say that we ought to frame 
our policy on the assumption that we are going to 
enjoy permanent peace, not on the assumption that 
there is going to be a renewal of war ; and that we 
should leave agriculture to its own resources. That 
is rather a sanguine or ostrich-like view. However 
eager we may be to ensure the success of the League 
of Nations, it is not yet safe to assume that the 
millennium has been attained ; the omens at the 
moment are not very hopeful. In any case, to 
neglect our food resources, and to leave ourselves 
as defenceless as we were in 1914, or possibly more 
defenceless, would surely be a positive encourage- 
ment to the renewal of war. The spectacle of these 
rich islands at the mercy of any Power which was 
prepared to employ ruthlessly a handful of sub- 
marines — now more dangerous than they ever were 
— would surely be a criminal challenge to war. The 
development of our food resources is not only 
necessary as a measure of protection in the event 



of war, it is necessary as a safeguard for the con- 
tinuance of peace. 

But there are other considerations which lead in 
the same direction. There is to-day a serious 
shortage in the world's production of foodstufifs ; 
and it will be a good many years before this shortage 
is cured. It is our duty both to guard ourselves 
against it, and to make what contribution we can 
to the common need of the world. 

Moreover we have to contemplate, and prepare 
against, a change in the character and direction of 
our foreign trade, by means of which we have 
hitherto kept ourselves alive. A highly important 
element in our foreign trade has hitherto been the 
export of coal. That has declined, and will probably 
continue to decline, partly because we are producing 
less coal, and producing it at so high a price that 
we are being undersold in foreign markets ; partly 
because — quickened by this very fact — the world is 
increasingly using oil instead of coal for many 
purposes. This may lead to a general decline in 
our foreign trade, in which case we must use every 
means of increasing our home production of wealth 
to make good the deficit. 

Even if this result does not follow — and it can 
only be averted by energy, foresight, and hearty 
co-operation — the decline in the export of coal 
handicaps our shipping, which is the very breath of 
life to us, because it deprives it of bulky and profit- 
able out-going cargoes, which saved ships from the 
necessity of doing half their trips with empty holds 
and therefore kept freights down, and made it 
possible for our ships to compete with their rivals. 


The only way in which we can remedy the reduction 
in bulky out-going cargoes is by bringing about a 
corresponding reduction in bulky in-coming cargoes. 
This would, no doubt, reduce the total volume of 
freight carried to and from this country. But it 
would mean that the ships would be more able to get 
cargo both ways, and so could charge freights which 
would enable them to compete with foreign rivals ; 
and it would release ships for the general carrying 
trade in all parts of the world, by which we earn 
much of our national income. The only way in 
which we can balance the reduction of bulky out- 
going cargoes is by reducing the import of foodstuffs ; 
and the only ways in which we can do that are 
either by starving (which we may come to) or by a 
greatly increased production at home. 

Thus on all grounds it seems to be of the highest 
national importance that we should do everything 
In our power to bring about a great revival and 
development of British agricultm"e. We may regard 
it as certain that if scientific method, the increased 
use of machinery, enterprise, co-operation, organisa- 
tion, skill, and initiative were more vigorously apphed 
than they have hitherto been, great results could 
be obtained from our fertile soil without any burden 
upon the taxpayer. What are above all needed 
for the development of our agriculture are more 
brain-power and better organisation. 

The most valuable aid which the nation can give 
to the revival of its agriculture is the organisation 
of research, and the systematic diffusion of its 
results. To this we must mainly trust, if our past 
neglect is to be redeemed. But the work must be 

L 2 


undertaken in no half-hearted or niggling spirit. 
Here, assuredly, is a sphere in which generous and 
intelUgent expenditvire will reap a fifty-fold return. 
If we can obtain a scientific analysis of all our soils, 
and the best ways of enriching them, and the uses 
to which they can be most profitably put ; if we can 
study the problems of plant-life systematically in 
relation to our climate ; if we can explore to the 
utmost the possibiUties of labour-saving devices in 
field-work, and the best ways of bringing about 
economies in distribution ; and if, finally, we can 
by a highly organised system of propaganda lead 
our farmers to welcome new methods and to study 
them, instead of clinging to the rule-of-thumb 
methods of their ancestors, there is scarcely a limit 
to the improvements wliich can be brought about 
in the productivity of our rich and fertile soil. 

But more than this is needed. One of the main 
reasons why agriculture has decayed has been that 
men of ability and initiative in all grades have been 
drawn away from the fields, leaving only those 
whose love for the land was too great to allow them 
to be tempted, or those who were too stolid and 
conservative to change. They have to be attracted 
back again ; that is the main desideratum. It 
cannot be satisfied in a day, and patience will be 

What is needed if men of keenness and ability 
are to be attracted into agriculture, not only as big 
farmers, but as labourers and as small holders ? 

First of all, a man who takes up agriculture must 
be sure of good wages, on which he can decently 
support a family. He must be able to get a good 


house, which will really be his own, not liable to be 
taken from him if he gets into the bad books of the 
farmer. He must have no reason for looking 
forward to the workhouse, which has hitherto been 
too often the reward of a long Ufe of honest work. 
He must have prospects of advancement, however 
humbly he may begin ; the chance of taking a small 
holding, and of getting, on the strength of his 
industry and character, advances of the capital 
necessary to work it ; and beyond that, the chance 
of taking a bigger farm if he has enough abiUty, 
thrift, and industry. Finally, he must be saved 
from the deadly stagnancy which has fallen upon 
village life in England, not merely by being provided 
with the means of rational amusement, but still 
more by being able to feel that he is a member of a 
co-operative community, which helps him and 
deserves his service. If such conditions could be 
estabUshed, there need be no fear of men not being 
attracted to a country life, the longing for which is 
ingrained in most EngUshmen, most of whose 
ancestors, until yesterday, lived this life. These are 
the conditions which we must set ourselves to 
create. What ought to be done to create them ? 

First of all, in order that he may be able to pay 
good wages to his labourers (which is the root of the 
whole matter) the farmer must be helped to make use 
of every scientific method, and of every mechanical 
device, for increasing output at the least possible 
cost. The war has already taught him much iu this 
regard ; but much more can be made possible by 
experiment and research, and by making new 
methods and inventions known by means of demon- 


stration. That is a proper function for the State. 
Secondly, advances of working capital must be 
made easily available both for the large farmer and 
for the small holder. If the existing banks will not 
undertake this on an adequate scale, a new banking 
system must be developed, as in other countries. 
Thirdly, the producer, large or small, must be sup- 
phed with the best possible facilities for marketing 
his produce on the most favourable terms. That is 
partly the work of the railway system. But it can 
also be greatly forwarded by a co-operative system 
such as has worked a revolution in the agriculture 
of Ireland and of Denmark ; and co-operation can 
do much more for the farmer, the small holder, and 
the labourer besides helping them with marketing. 

All these are methods of stimulating and assisting 
agricultural development which, if systematically 
used, would bring new Ufe into our countryside. 
They have to fight against much stolid conservatism, 
but a good deal has already been done by the pressure 
of the war, and much more can be done under 
intelligent leadership. 

But in addition to all this, the producer must, 
we are told, be assured of a price for his product 
which will enable him to pay good wages, and 
encourage him to put forward his best efforts, to 
take risks, and to aim at the maximum yield which 
his fields can give. How is this guarantee to be 
given ? 

Some think that it can only be assured by means 
of a tariff on imported foodstuffs : some even speak 
as if a tariff would be enough by itself to bring 
about a great revival of agriculture. But a tariff 


is a double-edged weapon, very inefifective for the 
purpose for which it is devised, and very costly. 
If it is necessary for the community to pay for the 
revival of British agriculture — and it is by no means 
certain that this will be necessary, as things now 
are — it is much better, and much cheaper, to 
guarantee a price, and to pay the farmer directly, 
out of the national exchequer, the difference between 
the market-price and the figure of the guarantee. 
A tariff raises the price all round, both of the im- 
ported and of the home-produced article ; and 
though part of its proceeds comes into the exchequer, 
the total amount paid in increased prices by the 
consumer is likely to be much greater than the 
amount of any subsidy to the farmers. A tariff is 
operative in everj'^ year whatever the world-price 
may be ; a subsidy will only be paid when the 
world-price is lower than the guaranteed price, and 
only to that extent — the community pays only 
what is necessary to effect the purpose in view. If, 
as may well be, other devices succeed in improving 
and cheapening the home product, the subsidy may 
not have to be paid at all ; the tariff will always 
have to be paid. At present the world-price is so 
high that, though a guarantee is given, it does not 
actually cost anything. This state of things will 
probably last for a number of years ; and by the 
time it has come to an end, energetic measures for 
attracting brains and skill into agricultural work, 
for conducting research, and for organising more 
efficient methods of co-operation and distribution, 
may have made it possible for British farming to 
hold its own once more against all rivals, even 


without subsidies. Iii any case, a system of guaran- 
teed prices should be regarded primarily as a 
transitional measure, while research and organisation 
are bringing about an improvement of methods. 

But even this is not aU that is required. The 
cultivator, whether large or small, needs greater 
security of tenure than he now enjoys. He needs 
real safeguards against unreasonable increases of 
rent — the only sound reason for an increase of rent, 
in general, being that the landowner has expended 
money in improving his land. He needs greater 
freedom from restrictions embodied in his lease, 
whereby he is tied down to certain methods of 
cultivation and denied freedom for experiment. 
In some of these respects the last Liberal Govern- 
ment has already given real reUef ; but there is more 
still to be done. Finally the small man needs a 
very great increase in the opportunities for taking 
up small holdings on reasonable terms. Not that 
the small holding ought to be regarded as the 
principal means of bringing about an agricultural 
revival : it is on the large farm (which may often 
be co-operatively run) that large-scale scientific 
production can best be undertaken. But there are 
certain forms of production for which the small 
holding is peculiarly well suited. It also offers a 
career for the small man, a stimulus to ambition ; 
and for this reason small holdings ought to exist 
alongside of large farms. The great obstacle in the 
way of extending the number of small holdings on 
an adequate scale has hitherto be«n the difficulty 
of obtaining land at a reasonable price for the 
purposes contemplated by the Small Holdings Acts. 


The system of compulsory land purchase at reason- 
able prices which we have already suggested would 
rapidly and easily amend this. 

It is not a simple matter to revive English agri- 
culture after the neglect which it has long suffered. 
A whole code of legislation is required, backed by 
enlightened and sympathetic administration. But 
the object of this code would be, not to make the 
cultivation of the fields a function of the State, but 
to use the power of the community for the purpose 
of releasing the factors of enterprise, individual 
energy, and voluntary co-operation from the shackles 
which have hitherto restrained them ; and to open, 
on the rich soil of England, a career to talent and a 
field for the exercise and development of indi- 
viduality. These are aims wholly in accord with 
the spirit of Liberalism ; nor is there any aspect 
of national life in which that spirit is likely to lead 
to richer results. 



In the foregoing pages we have tried to analyse 
the principles which should guide Liberalism in an 
advance towards a healthier industrial organisation, 
wherein not the few only, but all who share in the 
work of production, could feel that they might 
willingly and zealously co-operate as free men ; an 
advance not dominated by a preconceived and 
rigid scheme defined in abstract formulae, but using 
and delighting in an infinite variety of method, and 
leaving abundant outlets for many forms of indi- 
vidual energy. 

But a reconstruction of industrial organisation is 
not enough to satisfy the needs of a free com- 
munity which values manhood more than wealth. 
It is not enough even for the highest kind of indus- 
trial efficiency, which ought surely to thrive best 
if its agents are men and women with healthy bodies, 
sound tastes, and alert and active minds ; men and 
women of real individuality, whose powers are not 
allowed to run to waste. 

The conditions created by the industrial develop- 
ment of the last century and a half have certainly 
not been favourable to the production of a popula- 
tion of this character. They have condemned the 



bulk of the nation's manhood to live in ugly, de- 
pressing, and unclean surroundings ; and the healthy 
protest against these constitutes a very large element 
in the unrest and discontent of to-day. They have 
produced a population of alarmingly low physical 
standard. Nor has nearly enough been yet done 
to render easily accessible to all men the means of 
self-training, whether in practical arts, or in those 
nobler studies whereby a man finds his better self 
by learning the greatness of the heritage of beauty 
and of thought to which he is the heir, and whereby 
he becomes more fuUy a member of the community 
by entering into the best traditions, and sharing 
the hopes and achievements, of his ancestors. Finally, 
considering the extent to which modern industriaUsm 
is dependent upon the discoveries of science for all 
its advances, it has been quite extraordinarily 
neglectful of the importance of providing for skilful 
and unflagging scientific inquiry. 

For all these needs a wise and forward-looking 
policy must take thought : for housing, and the 
amehoration of our cities and villages ; for the 
health of our people ; for education, of adults as 
well as of children, and the enlarging and refining 
influence of the arts ; for organised and systematic 
research. Provision for these ends is essential to 
a sound industrial pohcy, though it looks to ends 
far wider than mere industrial success. In theory 
we are aU awake to these needs ; and we recognise 
that they cannot be left whoUy to the spasmodic 
and unregulated operation of private forces, but 
that the organised power of the community must 
be brought into play to supply them. 


But there is great danger, in all these spheres, 
and more especially in the less material of them, lest 
governmental and official control should be carried 
too far, and should exercise a deadening influence. 
This danger is already perceptible in our educational 
system, which tends to shape everybody after an 
accepted pattern, and by so doing to stunt indi- 
viduality. Here again, as in the industrial sphere, 
the problem is to combine the necessary degree of 
communal action with the maintenance of individual 
and local freedom and variety of method. Here 
again the Liberal passion for individuality and 
freedom is needed to safeguard us against a stereo- 
typed, centralised, over-regulated system. 

i. — Housing and Town-Planning. 

The problem of housing, and the closely-related 
problem of improving our cities and towns and 
clearing out their soul-destroying slums, are to-day 
more difficult than ever, because we are now an 
impoverished and debt-laden people ; while the 
urgent need of a great increase of housing accom- 
modation, and the extreme difficulty of meeting it 
owing to the high cost of materials and the scarcity 
of qualified labour, render it futile to imdertake 
any large projects of demoUtion and reconstruction. 

Yet the very fact that there is so much to be 
done ought to encourage us to take long views, and 
to make sui-e that the work of home-making now 
to be undertaken is not carried out in such a way 
as merely to ensure the creation of new eyesores 
and plague-spot6. We are paying heavily to-day 


for the failure of our ancestors to look far enough 
ahead a hundred years ago ; at the beginning of 
what wiU probably be a new era of rapid construc- 
tion we must not be guilty of a similar blunder. It 
will be indispensable that our action in this field 
should be guided and controlled by legislation and 
by the administrative activity of public bodies, 
national and local. At the same time it will be 
wrong to depend wholly upon centralised control, 
or upon the official action of pubHc bodies. Every 
means of enlisting the aid of enlightened private 
effort, and of guiding it into fruitful channels 
without restricting its freedom for experiment, 
should be employed. 

Thus aU possible stimulus, encouragement, and 
assistance should be given to great industrial concerns 
to enable them to provide housing for their work- 
people in conditions that preserve the amenities in 
the manner already adopted by some progressive 
concerns, as at Port Sunhght and Bournville ; on 
condition that these projects are not worked for a 
profit, and that proper freedom is allowed to the 
tenants, they can legitimately be financed in part 
out of pubUc funds. If the railways and the 
mines are brought under public ownership in the 
method already suggested, it might properly be 
made an obligation upon the railway Board and 
the Board of Mines to ensure that adequate housing 
was available for the workpeople in these industries, 
amid conditions of reasonable amenity. 

Again, all possible assistance, including help in 
the raising of the necessary capital, should be given 
to those admirable public societies or companies 


which have undertaken to create properly planned 
towns, villages, or suburbs by co-operative effort, on 
the conditions that (a) only a limited rate of interest 
is paid on their capital, and that (6) the increased 
value given to the land by their activity is secured 
for the public, and employed for the provision of 
open spaces and other amenities. A very great 
expansion of this kind of public -spirited private 
enterprise is both possible and eminently desirable ; 
it leads to useful and varied experiments ; and 
State action which will help and foster such work 
is wholly in accord with the ideals of Liberalism. 
These enterprises represent in almost an ideal form 
the combination of public service with individual 
initiative and originaUty, and with the earning of 
a fair but definitely limited return on widely-diflfused 

But, when all is said, private enterprise alone 
cannot possibly meet the need. The responsibility 
is now definitely imposed upon all urban authorities 
to make plans for the future development of the 
areas under their charge — plans which must deal 
not merely with the treatment of particular un- 
developed areas or of small slum regions, but which 
must look far ahead to the future reconstruction 
of the whole town, and to which smaller projects 
can be adapted. Our dependence for the future 
must rest upon three factors : the stimulus and 
guidance of the national Government ; the strenuous 
and systematic activity of local authorities, trying 
every form of experiment ; and, finally, the fertile 
and varied activity of private enterprise, which, 
though no longer left unchecked and unaided, must 


be allowed great freedom and given the utmost 

For all this work a very important need is the 
power of acquiring land easily and on reasonable 
terms, and the means of financing the acquisition 
of land without dislocating the finances of the body 
undertaking it. We have already shown that it is 
the accepted policy of Liberalism to facilitate this 
very necessary work. 

ii. — Public Health. 

In the sphere of public health, we have just 
witnessed the institution of a new or reorganised 
department of Grovernment, not before it was needed. 
It has as yet shown no great boldness or breadth 
of conception. But it is still too early to judge of 
its work ; and for that reason it is enough to say 
that there is no sphere in which Liberalism recognises 
a greater need for courageous communal effort ; 
since there is nothing upon which the development 
of free individuality, and therefore of liberty, more 
manifestly depends than the maintenance of condi- 
tions favourable to the sound body which can house 
the sound mind. 

At the same time, there are few spheres in which 
personal liberty may be more easily endangered by 
a regime of over-regulation and of excessive bureau- 
cratic control ; and Liberalism, while recognising 
the need for an immense expansion of public activity 
in this sphere, must be always on the alert against 
this danger. 

In the past the provision of aid for the sick and 


the suffering lias been left to voluntary ett'ort in 
far too great a degree ; and the community has 
been too blind to its communal responsibilities in 
this sphere. The beginning of a new era of organised 
pubUc effort in this field was made by the Liberal 
Government of the pre-war period, in its provisions 
for insurance against sickness, for systematic medical 
attendance, for the medical inspection of school 
children, for the safeguarding of maternity, for the 
treatment of tuberculosis ; and the foundations 
thus laid will have to be built upon. We are, in 
truth, only at the beginning of communal effort in 
this sphere. There are many fields, such as the 
treatment of infectious diseases, in which private 
enterprise did practically nothing ; and the more 
the subject is studied, the more patent it becomes 
that our main reliance must be upon communal 

But while we recognise the need for a great exten- 
sion of the communal provision for health, we are 
bound also to recognise that there is no sphere in 
which private enterprise, though insufficient by 
itself, has been more beneficial, more original, more 
public-spirited, more sympathetic ; no sphere in 
which voluntary personal devotion has been more 
abundant or more fruitful. It is impossible for 
any official public system wholly to replace this 
spontaneous outpouring of human kindliness ; and 
it would be the greatest of blunders to discard it 
as if it were of no value because it is not easily 
fitted into a neat official scheme. 

It is possible that, OA\ing to the increasing poverty 
of those who have in the past mainly supported the 


hospitals, we are drawing near to the time when 
they can no longer be wholly maintained by volun- 
tary effort. But if that is so, it would be a profound 
blunder to jump to the conclusion, as many Socialists 
do, that the occasion should be seized to organise a 
State-controlled hospital system, from which the 
private subscriber and the watchful attention of 
voluntary committees will be altogether banished. 
To follow such a course would be wilfully to sacrifice 
a noble tradition, and to refuse to employ voluntary 
civic service in one of its noblest forms. 

Here is, indeed, a very clear illustration of the 
distinction between the methods dictated by the 
ideas of Liberalism and those dictated by a doc- 
trinaire Socialism. For while the logical Socialist 
would eagerly seize the chance of organising all 
hospitals in a systematic way under Governmental 
or municipal control, and placing them wholly on 
public funds, the Liberal, while recognising the 
need for pubUc aid and public regulation, would on 
every ground prefer to make the utmost possible 
use of private and voluntary effort in a field in 
which it has done so much good work. 

iii. — Education. 

When we pass to the supremely important sphere 
of education, the need for encouraging individuality, 
variety, and experiment is yet more apparent. Our 
British school-system has been distinguished by the 
large degree of power which it has allowed to local 
authorities, and by the limitation of the function 
of the State to financial assistance, inspection, and 



advice. It has also been marked by the large place 
which it preserved for schools of all grades which 
were maintained or controlled wholly or partly by 
voluntary agencies. These features have main- 
tained in our schools a certain degree of variety and 
individuaUty, in marked contrast with the strict 
and uniform centralised control which exists in 
some other countries. 

Yet the fault of our educational system is to be 
found rather in the deficiency than in the excess of 
individuality. There is too little personal interest 
in and sympathy "with the work of particular schools. 
Above all, the individuaUty of the teacher, upon 
whom every tiling depends, has been too much re- 
pressed, partly by the way in which he is trained, 
partly by the pressure of a deadening system of 
examinations, but partly also by the influence of 
pubHc authorities and public officials, who are apt 
to find uniformity far easier to understand and 
work with than originality and variety. Under the 
great Education Act of 1918 we are at the opening 
of a new era, of infinite promise, in which the 
character of the future generations will be largely 
determined ; and it behoves us to see to it that 
the freedom and variety of experiment in which 
the Liberal spirit believes are not crushed out by 
the fondness of ruling bodies and ofiicials for laying 
down elaborate regulations ; we have seen the 
results of that in the State-Socialist system of 

How this danger is to be averted it is not our 
business here to discuss ; it depends partly upon 
the giving of public recognition and aid to private 


efiorts and experiments when they satisfy certain 
broad conditions ; partly also upon the way in 
which we deal with certain problems of political 
organisation which are becoming m-gently important, 
but cannot be discussed here. 

But with the results we are concerned, even from 
the point of view of purely industrial policy. It is 
only by means of an educational system which 
cherishes freedom and individuality, as the best 
parts of our system have done in the past, that we 
can hope to produce a nation of free men, or enlist 
in the service of the community and of its industries 
men with alert and active minds of their own, 
fertile in ideas, ready to assume responsibility, and 
penetrated with the community-spirit. And it is 
only a training conceived in this spirit, not a routine 
and uniform drill along accepted beaten paths, 
which will give to our people the sense that they 
are being trained to be free men rather than cogs 
in a deadly machine. 

If freedom and variety are needed in the training 
of our young people, still more are they needed in 
that higher development of popular education the 
value and importance of which we are only beginning 
to realise — the education of those adults over school 
age who have for one reason or another (usually 
poverty) failed to follow the orthodox path through 
aU the grades up to the university, but nevertheless 
feel the thirst for knowledge and enUghtenment. 
Only by providing generously for such needs can 
we hope to make the best of the immense wealth of 
brain-power, originality, and capacity for pubUc 
service which at present runs to waste ; only so 

M 2 


can we disabuse many thousands among our citizens 
of the belief that in the order which now prevails 
they are treated merely as tools for wealth-making, 
and are denied the means of access to the riches of 
knowledge and thought, the means of making the 
best of their own powers. 

How is such a system of training to be instituted 
— a system which shall give to able but untrained 
men what a university can give to those who have 
followed its courses, that is to say, a knowledge of 
how to find the best material on the subjects in 
which they are interested, how to criticise it, how 
to evaluate evidence, how to form opinions that 
are worthy of respect because based upon a real 
knowledge of what can be said on both sides of 
controverted questions ? 

If the State were to organise under its own direct 
control any scheme of training of this kind, it would 
inevitably and rightly be regarded with suspicion, 
especially in so far as it dealt with political and 
economic questions ; because those who control the 
State at any given moment are themselves neces- 
sarily advocates of particular views on these subjects, 
and might be tempted to use any such machinery 
for imposing their views on the community. We 
have seen this done on a colossal scale, and with 
disastrous effects, in Germany, where the State, 
controlUng all the Universities as well as the schools, 
deUberately used this power to diffuse its doctrines. 

No free and thinking man will willingly submit 
himself to a course of training wherein he knows, or 
suspects, that the conclusions at which he is to 
arrive have been determined beforehand, that he 


is to be led to accept cut-and-dried doctrines because 
other people desire that he should hold them. That 
is not what the able and inquiring workman who 
feels his own ignorance desires ; he wants to be 
given the equipment which will enable him, as a 
free man, to form his own conclusions. 

For that reason organisations like the Central 
Labour College, which deliberately aim not at 
training their students to think, and to weigh 
evidence independently, but at filling their minds 
with a cut-and-dried set of doctrines and arguments, 
cannot provide a solution of the problem which 
will be permanently satisfactory to the intelligent 
workman. In a free society such organisations 
have their place, so long as they are recognised for 
what they are — organs of propaganda, Hke the 
poHtical clubs, whose aim is to impose beliefs rather 
than to train thought. But they do not and cannot 
meet the need which we are discussing. 

If what is needed is a genuinely free system of 
training, wherein teachers and students alike can 
feel that they are absolutely unshackled as to the 
conclusions they reach on an honest and scientific 
examination of the evidence, this can best, perhaps 
only, be attained by entrusting to the Universities 
the duty of providing it, and equipping them with 
the means for doing so. For it is the glory of the 
British Universities that, unlike the Universities of 
some other lands, they are wholly free from any 
external control or dictation as to what they shall 
teach and how they shall teach it ; especially they 
are free from the control of the State. The appoint- 
ment of their teachers is never consciously influenced 


by a consideration of their opinions ; they are 
appointed solely in view of their ability, the range 
of their knowledge, their capacity to conduct inde- 
pendent and scientific inquiry, and to weigh con- 
flictmg evidence. Accordingly there is in no British 
University any uniformity of political or economic 
ideas, and every school of thought usually has its 
representatives, though they have never been 
chosen because they represent schools of thought, 
but solely on the ground of their scholarship. 

A system of adult training worked through the 
Universities with generous State aid will thus be a 
free system ; and it will at the same time enable 
those who use it to share in the garnered wealth 
of the nation's learning, which belongs to the whole 
nation, and ought to be open to all who can make 
good use of it. But a yet higher degree of freedom 
than this is both possible and desirable ; the system 
can be — and in its hitherto modest beginnings is — 
so arranged as to permit the students to choose not 
only the subjects they wish to study, but (within 
practicable limits) the teachers under whose guidance 
they are to work. 

iv. — Research. 

We have left to the last a need which stands 
perhaps highest of all, since it can alone provide 
the foundations for wise action in every sphere : 
the need for organised and systematic research 
into all the problems which surround and perplex 
our society. Upon the satisfaction of this need, 
more than upon any other single factor, depends 


the possibility not only of our being able to produce 
sufficient wealth to secure for our people the material 
foundations of happiness and freedom, but also of 
our finding our way to sound methods of organisa- 
tion in industry and politics. 

And here, more markedly perhaps than anywhere, 
is apparent the necessity on the one hand for State 
encouragement and assistance, and on the other 
hand for the utmost possible freedom for private 
enterprise and individual initiative in a thousand 

The State must itself take action, as it has already, 
tardily and timidly, begun to do. There are some 
spheres in which necessary forms of inquiry can 
only be successfully carried on under the direction 
and at the immediate cost of the State ; some kinds 
of scientific investigation, to meet immediate public 
needs, such as the problems presented during the 
war ; some kinds of social inquiry, such as the 
actual facts about unemployment at any given 
moment, or about the cost of living, or about 
fluctuations in the purchasing power of money. On 
such matters the State alone can have access to 
the necessary materials for inquiry ; and it is its 
duty to conduct the investigations and to make the 
results public. But in the main the function of the 
State in this sphere is rather that of giving stimulus, 
encouragement, and support than that of directly 
undertaking the work itself. For research is so 
individual a thing that the mere notion of entrusting 
it to Grovernment officials selected for the purpose 
is, except in certain limited spheres, manifestly 


There is scarcely any function of importance to 
the welfare of the community which so clearly illus- 
trates how directly that welfare depends upon 
freedom for individual enterprise, how impotent 
the State is to do more than regulate and encourage 
tliis enterprise, or how destructive and deadening 
its interference is likely to be if it goes beyond this. 
Artistic production provides another illustration of 
a communal service which is wholly dependent upon 
individual inspiration ; and it is in these spheres 
that the rigid doctrines of the extreme Socialist 
school which puts its faith in centralised organisa- 
tion are most completely baffled. 

We need, then, that every encouragement should 
be given to all voluntary organisations for the 
conduct of research, upon which our future depends. 
Every industry should provide the means for carrying 
on research into possible new processes and materials, 
as well as into the psychological factors in the 
industry, the problems of fatigue, or the like ; and 
it is right that the State should give all possible 
encouragement and assistance to such inquiries. 
Every individual business concern should regard 
research as one of its necessary functions. Every 
Trade Union should initiate inquiries into the effects 
of -industrial conditions upon the minds and lives 
of the workers. Every education committee should 
organise research into the methods of teaching. 
Every political party or group should follow the 
admirable example set by the Labour Party, of 
carrying on organised research into the methods of 
political and social organisation. When all the 
sub -communities of our Great Society are awake to 


the fact that inquiry and knowledge are the only 
sound foundations of progress, we shall begin to 
advance more rapidly towards real social welfare. 
And in proportion as men acquire the spirit and 
outlook of the investigator, and learn more of the 
difficulties of the problems in which they are involved, 
mutual tolerance and understanding will grow : 
these are the roots of good citizenship. 

But when all is said, the organisations which we 
have enumerated in the last paragraph all exist to 
serve some predetermined end ; the inquiries which 
it is their right and duty to initiate must necessarily 
be coloured by the objects which they are intended 
to serve ; and although this will be in some degree 
corrected by the very multiplicity and variety of 
these objects, yet an absolute freedom to pursue 
knowledge solely for its own sake, and without any 
regard to the use which may be made of it, cannot 
be fully attained in any research-organisation set 
up by such bodies. But this absolute and unqualified 
freedom is the very breath of life for all the noblest 
forms of research ; and all the greatest discoveries 
which have revolutionised human life and thought 
have been made by men who have pursued knowledge 
in this spirit. 

It is impossible, by any mastei*piece of organisa- 
tion, to create the inspiration which leads to such 
results. But our community will be terribly im- 
poverished if that inspiration, when it comes, lacks 
the opportunities for realising its potentiality. 
Happily there exist, in the Universities, centres of 
inquiry which are wholly free, which are uncontrolled 
by the State or by any organisation created to serve 


a specific purpose, and which exist solely for the 
pursuit of knowledge without any other considera- 
tion. For that reason it must be always towards the 
Universities that men and women, in whom the 
spark of free inquiry has been set alight, must first 
turn. If, therefore, the life-giving spirit of free 
inquiry is to have real abiding-places in our com- 
munity, it is beyond all things necessary that the 
Universities should maintain their freedom, should 
be emancipated from any shackles that may still 
bind them, and should be placed in a position to 
offer all needful opportunities to those who come 
to them with the zest of disinterested inquiry. 

Liberalism must therefore regard the ample 
endowment of free universities as one of the essential 
foundations of a new and better social order. Here, 
as in the industrial sphere and in every other, the 
utmost possible freedom for every useful form of 
individual effort and enterprise, protected, encouraged 
and helped, but not unduly meddled with, by the 
organised power of the community, forms the mode 
which Liberalism believes to be the only safe and 
healthy mode of progress. 



It is almost useless to discuss the organisation of 
industry without reference to the system of national 
finance and taxation, for at every point the one is 
affected by the other. The burden of taxation, if 
unduly heavy or unwisely distributed, may so 
profoundly affect the production of wealth as to 
make the satisfaction of any of our ideals impossible ; 
the distribution of the wealth produced by the 
nation's activity is very directly affected by the 
proportion of it taken for national purposes ; and, 
finally, the weapon of taxation can be so employed 
as either to hinder or to help the process of social 
reconstruction. Some consideration of the problems 
of national finance therefore forms an indispensable 
element in our inquiry. 

The character of these problems has been trans- 
formed by the conditions created by the war. 
Before the war about one-tenth of the wealth 
annually produced by the nation was taken for the 
purposes of the national government. Thanks to 
the colossal burden of interest on debt, of pensions, 
and of other unavoidable charges, this proportion 
has risen enormously ; it is not possible to say how 
much, but it is probably not an over-estimate to say 



that between one-fifth and one-fourth of the wealth 
annually created by the nation has now to be used 
for national purposes. Only a very small part of 
this huge sum is employed for directly productive 
purposes, for the creation of new wealth, though a 
considerable part of it is employed for indirectly 
productive purposes such as education and public 

The withdrawal of so high a proportion of the 
nation's income from directly productive uses must 
obviously form a handicap upon productive activity ; 
and it becomes a matter of supreme importance first 
to ensure that this burden is reduced to the lowest 
point possible, and secondly to ensure that it is 
collected in the least burdensome ways, and (so far 
as may be) in ways that may help rather than hinder 
the development of a healthier economic order. 
That is to say, we must first consider how the im- 
mediate and urgent problems left by the war are to 
be dealt with, and secondly on what principles our 
normal scheme of taxation should be framed under 
the new conditions. Like other political creeds, 
LiberaUsm is bound to give clear answers to these 

Om* first plain duty is the most rigid economy in 
national expenditure. We are no longer a rich 
nation ; and out of our poverty we have to meet 
far greater calls than we ever had to meet before. 
We are in a situation in wliich a cheeseparing 
parsimony, both public and private, has become one 
of the greatest of civic virtues. Yet the habit of 
lavish and uncalculating expenditure, bred by the 
war, is hard to overcome ; and perhaps by way of 


reaction, the whole nation has rushed into an orgy 
of extravagance. The habit of thrift seems for the 
moment to be dead ; though it is only by thrift, 
combined with hard work, that we can hope to 
emerge from our troubles. 

The example must be set by Government. We 
cannot afford to maintain a Navy, an Army, or an 
Air-Force larger than the minimum necessary for 
national safety. We cannot afford to pursue an 
expensive foreign policy. We cannot afford to 
assume new responsibilities (as in Mesopotamia) 
even if it can be shown that our help is badly 
needed ; we have to be honest, and pay our debts, 
before we can be generous. We cannot afford to 
maintain a single pubUc office not absolutely indis- 
pensable for the conduct of necessary or productive 
work. We camiot afford light-heartedly to under- 
take undefined and growing burdens such as are 
involved in subsidies Uke those on bread and on 
railway-travelhng. We can afford these luxuries the 
less because it has on aU grounds become indispens- 
able for the national welfare that we should spend 
money generously on essential but hitherto neglected 
needs ; on research in many fields, on education, on 
the prevention of unemployment, on the develop- 
ment of various national resources which private 
enterprise has disregarded. And if it be true, as 
we are assured, that the Umit of taxation has almost 
been reached, then it is plain that we can find the 
money for these essential outlays only by drastic 
economies in other directions. 

Government has already done something for the 
reduction of expenditure from the lavish scale of 


the war. But it has not done nearly enough. It 
is not unfair to say that neither the Coalition nor 
the Labour Party has shown any genuine enthusiasm 
for the unpleasant but salutary medicine of cheese- 
paring economy. A hundred years ago, when we 
were in a similar but less serious pUght, the un- 
wavering cry of Liberalism was for " Peace, Re- 
trenchment, and Reform." To-day, as a century ago, 
Peace and Retrenchment are the essential pre- 
requisites for Reform. 

But the greatest zeal and courage in retrenchment 
will not be enough. We must face squarely the 
very grave situation in which we stand. And the 
gravest feature of this situation is that we are 
loaded with a national debt of some £8,000,000,000, 
involving an annual charge for interest and sinking 
fund alone which is twice as great as the total 
national revenue before the war. The preliminary 
question of the whole problem of national reorganisa- 
tion is the question, What is to be done with this 
appalling burden ? So long as it hangs Uke a millstone 
round our necks, we cannot hope to work with 
energy. For, as with the cannon-ball that used to 
be chained to the ankles of convicts, the longer the 
drag lasts the more it tells upon the strength of the 
man who has to endure it. 

It is important to keep in mind one distinctive 
feature of tliis colossal debt. The greater part of 
it was borrowed at a time when prices were very 
high, and when therefore the purchasing power of 
money was low ; £100 lent to the Government in 
1918 or 1919 could only purchase half as much 
steel or khaki as it could have pui'chased in 1914, 


and therefore Government had to borrow twice as 
much money as it would have needed had prices 
remained at the 1914 level. On the other hand, 
just because it had to borrow on so large a scale, it 
had to offer a high rate of interest, nearly twice as 
high as it was paying in 1914. Now suppose prices 
fall again, as they are bound to do in course of 
time. If Government then begins to repay the 
debt, it will have to pay back the £100 (which was 
in 1919 only worth £50 at 1914 rates) with £100 
which will then be worth in real wealth perhaps 
£70 on the 1914 basis. That is to say, the holder 
of debt will nominally get £100 for £100, but really 
£70 for £50. In its distressed condition the nation 
cannot afford to pay such heavy premiums. There- 
fore it is important that, so far as possible, the debt 
should be cleared off while prices are still high. 

There are three main ways in which it has been 
proposed to deal with this colossal burden. 

The first is that of simply repudiating it — the 
simple method adopted by the Bolsheviks in Russia. 
It is not necessary seriously to discuss this method, 
which is only advocated by lunatics who do not 
understand the first rudiments of the problem. For, 
apart from the utter dishonesty of such a course, it 
would obviously ruin the national credit, destroy 
the possibiUty of getting any future loans either at 
home or abroad, persuade the thrifty that, whatever 
else they might do with their savings, they must 
never lend them to the State, bring bankruptcy 
upon the great banks which have lent to the State 
a great part of the funds at their disposal, and thus 
make it impossible for them to give the necessary 


advances to industry, and bring about a general 
stoppage of trade, with universal unemployment 
and distress. 

The second method is that which has always been 
used in the past, both in our own and in other 
countries — that of paying off the debt gradually out 
of a surplus of income. It is sometimes estimated 
that this could be done in fifty years, but this 
calculation assumes that we shall have fifty years 
of peace and of fairly steady prosperity. It is a 
sanguine calculation, especially in view of the fact 
that the much smaller debt incurred in the Napoleonic 
wars had not been wholly paid off even in 1914, 
after a century of great prosperity. 

Moreover, this method is attended by two great 
difficulties. The first is that the nation would have 
to go on bearing taxation at something like the 
present rate even if trade were good ; while if a trade 
slump were to come the rate of taxation would have 
to be greatly increased to meet the debt charges. 
The burden of taxation is already so high as to 
be a handicap to productive industry ; if it had to 
be materially increased at a time when, through 
trade depression, the nation was poorer than it is 
to-day, the results might be disastrous. The second 
difficulty is that if prices go down — as we all hope 
that they may — the repayment of debt would be 
carried on upon very unfavourable terms ; each 
debt-holder, on receiving the nominal amount due 
to him, would in reafity be receiving an amount of 
real wealth far greater than his original loan repre- 
sented at the time when he made it. 

To get over these difficulties it has been proposed 


that we should cut the knot by a frank levy on 
capital — either on the additional wealth which 
many men have made during and because of the 
war, or on aU existing capital. 

A levy on capital is a perfectly legitimate method 
of emergency taxation, provided that it is equally 
distributed on principles that are just to all con- 
cerned ; though, of course, it is only defensible as 
an emergency measure, and would cause a great 
feeUng of insecurity and gravely discourage saving 
if it were to be repeated. 

One of the reasons against it is that if it were 
once employed. Governments in difficulty might be 
tempted to use it again, and that this temptation 
would be especially strong to a Labour Government. 
To this it may be answered that the one safeguard 
against such a tax lies in the danger of creating 
insecurity which it presents ; and that this danger 
is so real as only to be balanced by a grave national 
emergency such as now faces us. A Government 
which failed to reaUse this danger would certainly 
not be deterred by the fact that such a levy had 
never been made before. On the contrary, if it 
Imd once been made, on a substantial scale, with a 
clear understanding that it would not be repeated 
except in an equally grave crisis, the temptation to 
use it would to some extent be diminished, partly 
because of this understanding, and partly because 
the taxable margin would obviously be reduced. Our 
only safeguard against destructive measures in any 
event hes in the sound sense of those who conduct 
our affairs. We have to trust to that whatever 
happens ; and it is foolish to argue that you ought 



not to leap from the second storey of a burning 
house lest other people should get into the habit 
of jumping from second storeys. If a capital levy 
can be proved the best way, and a practicable way, 
out of our difficulties, it ought to be adopted. 

The proposal to limit such a levy to wealth made 
during the war has much to recommend it on the 
surface, since a great part of this wealth was un- 
deniably due to the distress of the nation, and 
ought to have been prevented if Government had 
known how to achieve this end. The project of a 
levy on war-wealth was very carefully considered ; 
and the Revenue Officials were of opinion that it 
was practicable. But there were some strong 
reasons against it. It would have involved a 
valuation of everybody's wealth not only as it is 
to-day, but as it was on August 4, 1914 ; and the 
earlier valuation could only have been carried out 
in a very rough way. No proper discrimination 
could have been made between those who had 
stinted themselves to the utmost, as many did, in 
order to lend what they could to the State, and 
those who made fabulous sums with little effort 
while denying themselves nothing. If a levy on 
war-wealth were to make any serious impression 
upon the debt, it would have to be on so severe a 
scale that it would have crippled or destroyed many 
useful activities now carried on by means of the 
wealth thus gained. In the form in which it was 
finally proposed, the project would in fact have 
done little to relieve the situation, and it presented 
many difficulties, the greatest being that of the 
double valuation. 


If the method of a levy on capital is to be adopted, 
it is therefore best on every ground that it should 
be applied to all capital. In truth the debt is a 
burden, a sort of mortgage, on the country's capital 
taken as a whole ; and, provided that it can be 
fairly done, it is right and fair that this mortgage 
should be redeemed out of capital, so far as this 
can be achieved without disorganising productive 

The difficulties to be overcome are twofold. 
The first and the greatest is that of valuing all 
capital (including land). But if (as the Revenue 
Officials held) it was possible to overcome the 
difficulty of a double valuation for the purpose of 
a war-wealth levy, it would obviously be much 
easier to overcome the difficulty of a single valuation 
of capital as it stands to-day. Indeed, such valua- 
tions have to be made every day for the purpose 
of death-duties, and in this way the whole capital 
of the country undergoes valuation in the course 
of a generation. Every individual owner would be 
required to make his own valuation, under heavy 
penalties for fraud ; and the Revenue officers, who 
have full information as to income-tax assessments 
and the market price of shares, would have good 
means of checking the retm-ns. No doubt there 
would be a good deal of fraudulent evasion, as there 
is in income-tax assessments ; that can hardly be 

The second difficulty is that of paying the levy. 
How, it is asked, could a man whose capital is 
nearly all sunk in a mill or a farm, or employed for 
the daily needs of his business, make over one-fifth 

N 2 


or one-tenth of it to Government without completely 
dislocating his business ? If Government were 
loaded up with scrip or title-deeds to lands, it 
would either have to realise them on the market, 
in which case there would be a sudden slump in the 
value of all these securities, or it would have to 
hold them and draw interest on them, in which case 
it would not be able to pay off the debt, and 
might as well be content with an increased income- 

This difficulty, however, is not nearly so great as 
it appears at first sight. In the first place, nearly 
all owners of capital have subscribed to war-loan. 
They would naturally use their holdings of war-loan, 
so far as they went, to pay the call upon them ; and 
the war-loan would simply be cancelled to that 
extent. In the second place, many holders of war- 
loan would be willing to take shares in industrial 
concerns in exchange, and it would not be difficult 
for Government to arrange a system of exchange of 
this kind. In the third place, a reasonable allowance 
of time might be allowed in special cases, the pay- 
ment of the levy being spread over two, three, or 
even five years. And there are other devices which 
could be adopted to make the transaction as easy 
as possible. The difficulty is a real one, but with 
care and thought it could be overcome. 

Any capital levy would have to be graduated, 
leaving the savings of the small man (say up to 
£4,000 or £5,000) undisturbed, and rising up to such 
a figure as would enable one-half of the debt to be 
paid off. One-half is as much of the debt as we 
ought to try to clear off in such a way, partly 


because it is fair that some of the burden should be 
left to the next generation, partly because it is 
reasonable to calculate upon the eventual repayment 
of at any rate a part of the loans to AUies and 
Dominions which are included in the debt. 

Assuming that one-half of the debt had been 
paid o£E in this way, what would be the result ? The 
actual amount of capital engaged in industry would 
not have been decreased ; but a part of it would 
have been transferred to persons now holding 
national debt. The amount of income hable to 
income-tax would have been decreased, because all 
the interest now payable on the cancelled debt 
would cease to be available for that purpose, and 
therefore, to that extent, the yield of income-tax 
would be reduced. But this would not matter, 
since there would be a far greater reduction in the 
interest which Government would have to pay, and 
this would render possible an actual reduction of 
income-tax and other taxes. Owners of large 
fortunes would be, in a varying proportion, poorer 
than they now are ; but their burden in taxes might 
be reduced, perhaps to an equivalent extent, and 
what they would have lost would not weaken the 
nation's productive power, since it would only 
represent capital already destroyed during the war. 
The pubUc credit would be improved, so that after 
a time Government might borrow money at a lower 
rate of interest to pay off more of the old high-rate 
debt. The improvement of pubhc credit would 
help to improve the foreign exchanges, and therefore 
to lower prices. Above all, the nation would have 
been saved from the inevitable future burden of 


paying a heavy premium to the holders of national 
debt when it was redeemed. 

All this is on the assumption that the operation 
could be carried out without a grave dislocation of 
industry. We have given reasons for believing that 
this is possible, but obviously much would depend 
upon the way in which the thing was done, and upon 
the amount of care, thought, and preparation devoted 
to it. Provided that this great and unprecedented 
Tindertaking is carried out with understanding and 
deUberation, after the fullest and most careful 
inquiry, Liberalism ought to advocate it as the 
best mode of escape from our present distresses. 
Obviously the scheme presents difficulties ; it is 
folly to underestimate them or to slur them over. 
But, as we have seen, the only alternative, that of 
maintaining taxation at its present high rate, or 
perhaps even increasing it, in order to pay off the 
debt gradually, presents yet greater difficulties, and 
threatens a more serious future disorganisation of 
productive activity. 

If for any reason it is decided that no such drastic 
measure as this is to be taken, we shall have to 
contemplate the retention of taxation at its present 
rate, or even at a higher rate, for an indefinite time. 
In other words, we shall have to realise that the 
conditions of national finance have been funda- 
mentally altered. Whereas we used to assume that 
we could fix the amount we intended to spend on 
national purposes, and then raise the amount by 
taxation, thus ordering the amount of cloth we 
needed according to the pattern we had fixed for 
our coat, we shall henceforth have to levy taxation 


up to the limit of safety, and cut our coat according 
to our cloth ; we shall have to do without desirable 
things, even perhaps without some things that 
might be plausibly regarded as necessary. 

What is the limit of safety in taxation ? It 
cannot be defined except in the most general terms. 
But assuredly it will have been reached if and when 
the burden of taxation begins to impede or to stop 
the nation's productive activity. There are signs 
that we have akeady almost or quite reached this 
point ; for the decreased output and the increasing 
unemployment of the summer of 1920 are probably 
In part due to the effects of heavy taxation. And 
as we cannot very greatly reduce our national 
expenditure, every reduction in productive activity 
must mean a further increase in the rate of taxation, 
followed by a further hampering of production. 

But it is not only the mass or volume of taxation 
which hampers industry. The form in which it is 
levied may have this effect even if the total burden, 
otherwise distributed, would be capable of being 
borne. Some forms of taxation have a deleterious 
influence out of all proportion to the amount which 
they yield. 

This is certainly the case with one modern form 
of taxation, upon which we now depend for a large 
proportion of the national revenue — the Excess 
Profits Duty. In the form in which it is now levied 
it discourages all new enterprises, which are heavily 
penalised in comparison with weU-established con- 
cerns ; it encoiurages wasteful expenditure ; it 
discourages all undertakings which are attended by 
any large amount of risk, as many of the most 


useful and productive undertakings are ; for those 
who are responsible are bound to reflect that while 
they will have to shoulder the whole of any loss, 
they will be allowed to take only a very small 
proportion of any profit. Moreover the immense 
yield of the Excess Profits Duty is to a large extent 
fictitious ; for if no such duty were charged, nearly 
half of the sum it yields would come into the 
Exchequer in the form of income-tax and super-tax. 
There are some who think that every difficulty 
can be met by the increased taxation of large in- 
comes, and that these incomes can be taxed almost 
to extinction without disadvantage to the com- 
munity. So far as these incomes are not due to 
any exertion on the part of the possessor, this may 
be true ; but so far as they are due to personal effort, 
the only result of such taxation must be to make 
it not worth a man's while to earn a large income, 
since his margin for spending will be practically as 
great whether he works hard or not. No Liberal 
has any tenderness for large incomes as such, or 
any hesitation about using the weapon of taxation 
as a means of reducing inequalities of wealth ; but 
the weapon must not be used in such a way as to 
check any man's legitimate efforts. And there is 
another consideration wliich must not be forgotten. 
As things are, a large proportion of the annual 
production of new capital comes from the unspent 
balances of large incomes. Unless and until the 
possessors of smaller incomes supply the deficiency 
by saving on a greatly increased scale, very high 
taxation of large incomes must necessarily reduce 
the amount of capital annually created, and therefore 


check productive activity, which cannot go on 
without capital. Great incomes have to be pro- 
gressively taxed for social as well as for fiscal 
reasons. But capital must also be created ; and 
therefore the increase of taxation on incomes of 
higher ranges can only safely take place if there is 
a concurrent increase of saving from incomes of 
lower ranges. One of the alarming features of our 
time is that general extravagance is postponing the 
time when it will be safe to deal boldly with large 

These considerations show how vitally important 
it is that taxation should be governed by clearly 
defined principles. Now this is a sphere in which 
it may justly be claimed that Liberalism is able to 
give a very clear lead, and to assert that its principles 
have triumphantly undergone the severest of tests. 
For the British financial system, which has stood 
the terrible strain of the war better than that of any 
other European country, was mainly worked out by 
a series of great Liberal financiers during the nine- 
teenth century. The principles upon which their 
work was based are as true to-day as ever they were. 

First among them ranks the principle that no tax 
ought ever to be imposed in such a way that the 
public has to pay more than the Treasury receives, 
and that the balance finds its way into private 
pockets. This is the strongest of many strong 
reasons for the poUcy of Free Trade ; and it is in 
conflict with certain tendencies in modern taxation. 

The second principle is that taxation should be 
levied in proportion to the ability of the taxpayer 
to pay without lowering his efficiency or making it 


impossible for him to maintain a reasonable standard 
of comfort. This principle would forbid the im- 
position of indirect taxes upon necessaries or upon 
foodstuffs, in spite of the fact that such taxes are 
often the easiest to collect and the most productive ; 
because the burden of them falls disproportionately 
upon the poor. The principle suggests rather the 
use of graduated income-tax as the form of taxation 
most easily adjusted to abihty to pay. The existing 
heavy duties on tea and sugar are inconsistent with 
this principle. In the present condition of national 
finance it may not be possible at once to get rid of 
them ; but it has long been the aim of Liberalism 
to abolish these duties at the earliest possible 

The third principle is that, in a democratic com- 
munity, all citizens who enjoy an income above the 
limit of decent family subsistence ought to be called 
upon to pay something, however small, in a form 
which will bring home to them their joint responsi- 
biUty for the national welfare and for the national 

The fourth principle is that those taxes should 
be preferred which will, while raising revenue, 
serve some purpose of social utility. Two purposes 
of social utility which can be served by taxation 
especially deserve mention because the purposes 
which they serve contribute to the economic health 
of the community. The first is the encouragement 
of thrift, which is undoubtedly forwarded by taxes 
on luxuries in so far as these taxes tend (as they 
undoubtedly do) to diminish the consumption of 
the taxed articles. The most prominent of the 


luxury taxes now in use are those upon tobacco, 
alcohoUc drinks, and entertainments. But many 
others are possible, though in many cases it has to 
be remembered that what is a luxury for one man 
may be very useful expenditure for another, and 
in such cases a system of allowances or rebates 
may be necessary. For this reason experiments in 
luxury taxation, like that recently made in France, 
have not hitherto been very successful. But the 
revenue which they yield is not the only test of the 
value of such taxes. If by the taxation of luxuries 
it is possible to restrain the wild extravagance into 
which our people are plunging, this result will be 
yet more valuable than the revenue derived from 
the taxes. A second purpose of social utihty which 
may be served by taxation is the reduction of swollen 
fortunes. This can be forwarded not only by a 
graduated income-tax, but still more by the taxes 
known as death-duties, which are, in their modern 
development, purely a Liberal invention. So long 
as they are not used in such a way as to diminish 
the motives for saving, these taxes can scarcely be 
fixed too high. 

Guided by these principles, a Liberal system of 
national finance, aiming at the production of the 
maximum revenue which could be obtained without 
interfering with the nation's productive activity, 
would rest mainly upon the following modes of 

(1) Income-tax, which should be regarded as the 
backbone of the whole system. It should begin at 
an income sufficient to provide a decent liveUhood 
for a family, which should pay only a nominal 


charge ; it should rise in a gradually steepening 
curve until, in the highest range of incomes, it 
attained as high a figure as 75 per cent. ; and in the 
lower ranges of income it should make substantial 
allowances for families. We have nearly attained 
to a system of this order, and the scheme of gradua- 
tion has been much improved in recent Budgets, 
especially since the report of Lord Colwyn's Commis- 
sion. But the process is not yet completed ; and 
it is probably desirable that the distinction between 
income-tax and super-tax should now be dropped, 
in order to bring out quite clearly what rate is 
being paid by each income and to simpUfy the 
process of assessment. 

(2) Taxes on land-values, and upon the increment 
in these values due to communal activity. This 
form of taxation, which has long been advocated 
by Liberals, has been successfully introduced in 
Canada, New Zealand, and elsewhere ; and these 
experiments have shown not only that such taxes 
may be very productive, but that they serve the 
further purpose of making access to land easier 
and often cheaper. The possibility of any such 
taxes depends upon a valuation of the land. But 
the valuation begun in 1909 was nearly completed 
when it was interrupted by the war ; and we have 
already urged that a rapid re-valuation (which 
could be checked by the records of 1909) might be 
made without much difficulty. 

(3) Death-duties, graduated in the same way as 
income-tax, so as to tend towards the break-up of 
very large fortunes ; but they should weigh very 
hghtly upon the lesser accumulations of amounts 


which could be saved from real and legitimate 
earnings during a man's lifetime, the object being 
to encourage saving and the creation of capital 
among the working part of the population. 

(4) Indirect taxes upon luxuries on a Free Trade 
basis ; the scale of taxation being framed with a 
view not only to the raising of revenue, but to the 
discouragement of superfluous or non-productive 
consumption, the encouragement of saving, and 
the release of luxury-products now consumed at 
home for export in exchange for necessary imports 
of food and raw materials. 

(5) A method of " prosperity-sharing " in the 
profits of estabUshed industrial concerns, to replace 
the existing Excess Profits Duty. It is eminently 
just that the community should share in the excep- 
tional prosperity of trading concerns to which the 
community invariably contributes ; and this can 
be done without incurring the deleterious effects of 
the Excess Profits Duty on the fines already sug- 
gested in an earfier section of this essay. For this 
purpose it is necessary (1) that new enterprises 
should be allowed a period of years without limita- 
tion of profits in which to estabfish themselves and 
to ensure a reward for the extra risks taken by the 
owners of the capital invested in them, and (2) that 
no " prosperity-sharing " taxation should be imposed 
until the concern had built up an adequate reserve 
on such conditions as we have earlier suggested. 
Charges for provision against unemployment and 
the outlay upon a reasonable scheme of profit- 
sharing with employees might also be aUowed for 
before the State took its share. But after these 


conditions had been met, the State ought assuredly 
to have a claim to a substantial share of any residual 
profits. In the same way the State should receive 
a substantial proportion if not the whole of the 
realised profits of any industry brought under 
national ownership and control, as it already does 
in the case of the Post OfRce. 

(6) The most important of the minor sources of 
revenue may be broadly described as payments for 
the assurance of legal protection for various forms 
of transactions, such as transfers of shares, receipts, 
cheques, licences, etc. Here it is essential to avoid, 
in the short-sighted pursuit of revenue, any hamper- 
ing of the processes of saving and investment. An 
instance of a tax which is open to criticism on this 
ground is the stamp on cheques. The stamp on 
every cheque forms a real discouragement to the 
wide use of banks for small accounts ; and nothing 
forms a greater inducement to saving than the 
possession of a bank-account, however modest. 
The absurdity of the system is that precisely the 
same sum has to be paid for the right of using a 
cheque for IO5. as for the right of using a cheque for 
£10,000. If no stamps were required, an immediate 
encouragement would be given to the use of the 
banks for small accounts ; with the result that the 
banks would have the handhng of a greatly increased 
floating capital, out of which they could make 
advances to industry ; while saving would be en- 
couraged, and an economy in currency would be 

The forms of taxation which we have enumerated 
are all, in one form or another, akeady in existence ; 


they represent, in the main, the tradition of nine- 
teenth-century Liberal finance. But they can be 
improved and developed. They can raise the 
maximum revenue without disturbing the standard 
of life of the mass of citizens, and without impeding 
the conduct of industry, provided that they are 
not maintained at too high a pitch. They tend 
towards the encouragement of thrift, and at the 
same time towards the progressive equalisation of 



We have in the preceding sections taken a rapid 
survey of some of the main economic and social 
problems that to-day face the British peoples — a 
survey which is necessarily incomplete, and which 
inevitably disregards the complexities of detail 
that often form the real difficulty of such problems. 

Our purpose in making this survey has not been 
to lay down a detailed programme of constructive 
legislation. For such a task we obviously possess 
neither the needful authority nor the requisite 
knowledge of detail ; and we recognise that deeper 
knowledge or more extended inquiry would, at 
one point or another, probably suggest better means 
of attaining the ends we have defined than those 
which we have outhned. 

Our primary aim has rather been to define the 
ends at which Liberal poUcy must aim ; to illustrate 
the spirit and the ideals which will guide the modern 
Liberal in striving after these ends ; to show that 
modern Liberalism is not merely helpless and 
bewildered in face of the problems which surround 
us, that it recognises the necessity for great changes 
and great reforms, and that the governing ideas 



which inspire it can provide the guidance which 
will, if it is followed, lead us to a better social 

There is to-day a widespread and insistent demand 
for a change in the methods, and still more in the 
spirit, in which industry is conducted. This demand 
does not come only from those who profit least from 
the existing methods of wealth-production. It comes 
as clearly from many of the best and most generous 
minds of our time ; it is echoed by all the most 
enlightened members of the employer-class ; it is 
strengthened by the spirit of comradeship that was 
the finest outcome of the Great War. 

The strength and prevalence of this demand 
are facts of good augury for the future. If it can 
be satisfied, we may well be on the eve of a new 
era in the history of our civilisation, an era of truer 
liberty and of a finer comradesliip than we have 
ever known. If, on the other hand, the demand 
remains unsatisfied, we can look forward only to 
growing bitterness and growing strife, perhaps even 
to an utter and dreadful coUapse of civihsed society. 
We have already witnessed such a collapse in Russia, 
where it was brought about by the fostering of the 
spirit of hatred and intolerance. 

The inspiring challenge of this demand camiot be 
met by a succession of makeshifts to deal with 
successive emergencies. The work of reconstruction 
must be guided by definite principles, by a definite 
ideal as to the kind of society at which we are to 
aim, an ideal capable of being understood by, and 
of appealing to, the mass of good citizens — capable 
of becoming part of the nation's General Will. It 



is the greatest defect of the Government under which 
we are hving that, just because its members have 
few pohtical principles in common, no one can 
define their ultimate aim. 

On the other hand, this challenge is still less likely 
to be met by abstract theoretical plans for the total 
reconstruction of Society from top to bottom, based 
upon a refusal to recognise that there is anything 
good in the existing order. That mode of travelling 
towards Utopia appeals to crude and impatient if 
generous minds, because, untaught by the long 
story of human error, they are ready to jump to 
the conclusion that the latest plausible prophet has 
in his mouth the sum of all wisdom. It has often 
been tried in human history, and has always led 
to disaster, as in the French Revolution, when a 
noble and unanimous national aspiration after 
justice, because it trusted to doctrinaire theories 
that had little relation to facts, brought about an 
extravagance, an anarchy, and a slaughter which 
undid most of the good that might have been secured. 
AU genuine human progress must arise out of the 
past, and preserve and build upon whatever good 
has been wrought out by our predecessors ; it 
must be guided by loyalty to" facts, not by a credu- 
lous, excited trust in the mushroom and evanescent 
theories of the moment, though it may draw inspira- 
tion even from these. 

We are to-day being loudly urged to undertake a 
complete and revolutionary recast of our whole 
economic system. Two distinct and mutually in- 
compatible proposals for this end are put before us 
by various groups within the Labour Party. One 


of these proposals — Socialism — is that all industry 
should be brought under the direct ownership 
and control of the State ; the other — Syndicahsm 
or Guild Sociahsm — is that every industry should 
be brought under the direct ownership and control 
of the workers in the industry, with whom even 
the State should have no power to interfere. 

We have tried to show that both of these schemes 
are open to many criticisms. Not only are they 
mutually destructive, but no one has yet been able 
to give a clear and defensible account of the way 
in which either would work in practice. Both are 
supported, in the main, by purely theoretical argu- 
ments. What is yet more important, both seem 
almost wholly to disregard, and threaten to de- 
stroy, three outstanding achievements which, amid 
many defects, have marked the existing economic 

The first of these achievements is the production 
of wealth on a scale unparalleled in the earlier 
history of the world. This has alone made possible 
the maintenance of a vast population at a steadily 
improving standard of comfort. Its continuance is 
necessary if any further improvement is to take 
place. Its main cause has been the freedom and 
the stimulus which the system has given to indi- 
vidual enterprise and initiative. 

The second of these achievements is the develop- 
ment of a remarkable variety of forms of industrial 
organisation ; for though we call our system 
" Capitahst," and though control by the owners of 
capital is its most characteristic form, yet this form 
by no means stands alone. Many other forms, as 



we have seen, exist and thrive alongside of it, and 
each industry is in a large degree free to find the 
form most appropriate to it. There is no such rigid 
uniformity of method as both the Socialist and the 
Syndicahst schemes would establish. Variety and 
elasticity are quahties too precious to be lightly 

The third of these achievements is the creation of 
a democratic State, which can speak and act for 
the whole community, which stands above and 
outside of the frictions and conflicts of industrial 
life, but which can and does intervene to protect 
the rights and liberties of every class of citizens, 
or to regulate the conditions under which industrial 
activities may be carried on. 

All these three healthy and valuable features of 
the existing order would be destroyed, or at the 
least gravely impaired, by the Socialist and the 
Syndicalist projects. For both of these projects 
would either greatly diminish or wholly destroy the 
incentives to individual enterprise and initiative 
which have been the principal cause of rapid increase 
in the production of wealth ; both would put an end 
to variety of method and organisation by insisting 
upon a rigid uniformity ; and both would destroy 
the power of the democratic State to act as the 
impartial guardian of liberty — Syndicahsm by de- 
priving it of the right to interfere in industrial 
affairs. Socialism by making it an interested party 
in every industrial conflict, and by loading it with 
such a multipUcity of functions that it would be 
unable to control its o^vn agents, and its back would 
be broken by the burden. 


/When the Liberal thinker fixes his mind upon the 
problem of social reconstruction, his first reflection 
must be that, whatever changes we may make, the 
fertile and healthy features of the existing order 
which we have enumerated must be preserved in 
the fullest possible degree ; for these features are 
altogether in accord with Liberal ideals, the essence 
of which is a belief in Hberty, in individuality, in 
variety, and in democracy. The kind of community 
which the Liberal spirit desires to create is one which 
will cherish Liberty beyond aU other boons, which 
will rejoice in variety of method and experiment, 
which wiU regard individual energy as the source 
and the motive power of progress, which will 
encourage every citizen to feel that all honest work 
of hand and brain is advantageous alike to himself 
and to the community, and which wiU use the power 
of the democratic State primarily as a means of 
securing to every citizen the conditions of real 
liberty and protecting him in its exercise, of stimu- 
lating individuality, and of guarding against every 
abuse of power that tends to restrict these or to 
stunt them. 

But if the Liberal's first thought is that certain 
good features of the existing order must be preserved, 
his second is that it presents also certain evil features 
which he burns to remove. For too many of our 
citizens Liberty is stiU unreal and individuality is 
repressed ; with most of us, in all classes, desire for 
private or class advantage dwarfs desire to benefit 
the community, and is thus hostile to the best kind 
of work. The main cause of this lies in the evil 
aspects of the existing system, in the fact that it 

o* 2 


seems to favour one or two elements in the com- 
munity, and one or two factors in productive work, 
at the expense of the rest, and in the further fact 
that some of the other elements or factors are too 
much preoccupied with the struggle against this 
apparent injustice to give sufficient thought to the 
public weal, and conflict is substituted for co- 

The factor thus chiefly favoured is Capital ; which , 
although it is only one among at least five indis- 
pensable factors in productive work, nevertheless 
claims, and largely succeeds in obtaining, a position 
of predominance almost amounting to dictatorship ; 
and although this is very materially qualified by the 
power of the democratic State, by the resistance of 
the other factors and especially of organised manual 
labour, and by the existence of a variety of forms of 
industrial organisation wherein Capital does not 
wield a controlling power, nevertheless this pre- 
dominance is real, and it arouses bitterness and 

Why has Capital been allowed, for so many 
centuries, to exercise so potent a controlling 
influence ? To attribute this result to the wicked- 
ness of capitalists is mere folly. Human society 
does not tolerate such a state of things without a 
reason ; and the reason has been that the accumula- 
tion and skiKul employment of great masses of 
capital, or wealth withheld from consumption, has 
been one of the chief causes of the immense produc- 
tion of wealth which has kept our society alive and 


Liberalism recognises the necessity for the creation 
of capital on a large scale, and believes that, in the 
future as in the past, individual effort and individual 
thrift must be relied upon for the production of most 
of the new capital which the community needs. It 
believes, therefore, in the private ownership of 
capital. But it recognises that the possession of 
immense masses of capital by a smaU number of 
men is unhealthy ; because it places in the hands 
of these men a dangerous degree of power. 
Liberalism must therefore aim at the wide diffusion 
of capital, and strive towards that end (a) by 
reducing swollen fortunes by means of taxation and 
in other ways, and (6) by encouraging saving in all 
classes of the population. The ultimately desirable 
state of things is that everybody should have 
the chance of creating and owning capital, and 
that everybody should earn wages by personal 

But Liberalism also recognises that the owners 
of capital, whether they be few or many, have no 
right to claim a position of predominance in the 
control of industry and the fixing of its aims, seeing 
that capital, though an indispensable factor, is only 
one among a number of indispensable factors in 
productive work. The practical assertion of such 
a claim is to-day one of the most fruitful causes of 
unrest. But the true mode of rectifying the 
exaggerated claims of capital is not to deny to 
capital any share in control, still less to jilace only 
one of the other indispensable factors in a similar 
position of predominance, a result which would 


follow from the Socialist and Syndicalist schemes. 
The true mode is the mode of partnership, securing 
to each of the indispensable factors in production 
a share of control appropriate to the part which it 

This principle of partnership is the essence of the 
industrial policy suggested by the ideas of Liberalism. 
But the part to be played by each element in the 
partnership cannot be defined by any sweeping or 
rigid formula. It must vary from one industry to 
another. It must change with changing times. It 
must permit of a great variety of experiment and 
of method, allowing each industry to find its way 
to the mode of organisation most suitable for it. 
In all industrial work the voice of every contri- 
buting element should have due weight, but there 
is room for wide variation in the relative influence 
which each element may possess. In all cases the 
directive and organising element must necessarily 
have a high degree of independent authority. In all 
cases labour of brain and hand must be assured of 
an effective voice in determining the conditions 
under which it is to work. But the ultimate deciding 
voice in questions of general poUcy should vary 
from case to case, falling in some cases to a national 
body under the ultimate control of the State, or to 
some other public authority, in other cases to the 
consumers (as in co-operative societies), in other 
cases to the workers by brain and hand (as in co- 
operative productive societies), in other cases to 
the owners of capital, where they assume heavy 
risks, and in yet other cases — the majority, perhaps 


— to an organised co-partnership of the several 
factors in production. And over all forms of 
organisation must stand the democratic State, not 
interfering in the actual conduct of industrial 
affairs (a function which it cannot directly perform 
with efficiency), but striving to ensure, by legislative 
and administrative action, that justice is done and 
that the rights and hberties of all citizens are 

We have tried to work out, in an illustrative way, 
some of the modes in which this principle of partner- 
ship might be reaUsed, both in the management of 
industries as a whole, and in the management of 
individual concerns. We have tried also to show 
how the power of the democratic State can be used 
to safeguard the community against abuses of 
power whether by owners of capital or by owners of 
land, and how it can be employed to afford to all 
citizens the conditions of real hberty, by helping 
them to obtain healthy conditions of hfe and the 
means of self -training. Finally we have tried to 
show how reforms conceived on these lines should 
lead large elements in our society to abandon those 
restrictions on their own hberty which they have 
voluntarily adopted as a means of safeguarding 
themselves against various dangers. These restric- 
tions on a man's freedom to do his best are ruinous 
both to the individual and to the community ; 
but thej^ can only be dealt with by getting 
rid of the conditions which have given rise to 

In short, we have tried to shadow forth the form 


of Society to which Liberalism looks forward, not 
as something fixed and definite which can be 
attained by a single act, but as something which will 
be progressively attained as we grow in knowledge 
and mutual understanding, as something towards 
which all the best work of our ancestors has contri- 
buted, as something which we may all help to bring 
nearer in our day and generation by honest work and 
mutual tolerance : a Society of free men, free to 
make the utmost use of all their powers without 
dictation or restriction, for their own advantage 
and that of the community, free to do by their own 
choice any of the things that are worth doing, and 
that are not harmful to others ; a Society in which 
each man's freedom shall be ensured by the common 
action of all, working through the democratic State ; 
in which the material basis of Liberty shall be 
guaranteed to .all who make their fair contribution, 
by work and by thrift, to the common weal ; and 
in which every undue exercise of power, or claim to 
dictatorship, by any element in the community, 
shall be restrained and controlled by the common 
wiU. This is an ideal which is very old, yet always 
new. It does not lend itself to easy and clap-trap 
catchwords. It does not promise a short cut to the 
millennium. It does not suggest that Utopia can 
be swiftly realised by the enactment of a few laws, 
since it puts reliance rather upon individual energy 
and private virtue, and beUeves that common 
action can do no more than create conditions which 
win be favourable to these. But it can give us 
something to work for, each of us in his place ; 


a clue to guide us through the bewildering com- 
plexities of our time ; an inspiration which has 
been potent in the past, and which can be all the 
more potent for the future, just because it does not 
set before us a rigid or hidebound theory, but invites 
us, as free men, to work, in an infinite variety of 
ways, not for ourselves alone, but for the expanding 
freedom and the peace and happiness of our children. 


Accounts of trading com- 
panies, 101 

Adult Education, 163-166 

Agricultural Development, 


America, Trusts in, 107, 108, 
110, 125 ; anti-trust legis- 
lation, 111, 112 ; freedom of 
labour in, 115 

Australia, 124 


Bolsheviks, the, and private 
property in land, 136-7 ; 
and Public debt, 175 ; con- 
fiscation of capital, 48 

Brain-workers, 83 

Building Guilds, 73 

Bureaucracy, 60, 122, 126 

Cabinet, its unsuitabili by for 
industrial work, 122 

Capital, amount necessary, 44, 
46 ; creation of fictitious, 
104 ; defined, 46 ; how pro- 
duced, 47 ; increase of 
amount with fixed rate of 
interest, 73 ; legitimate 
claims of, 77 ; one of the 
factors in industry, 55, 59 


Capitalism, 59, 102, 197-199 ; 

analysed and discussed, 46- 

58 ; its achievements, 65-68 ; 

why so long maintained, 97 
Capital Levy, discussed, 177- 

Cartels, 106-112 
Caste system in industry, 

danger of, 92, 115 
Central Labour College, 165 
Cheques, the duty on, 190 
Class-consciousness, 27 
Coal, decline in export of, 146 ; 

nationalisation of, discussed, 

Coalition, the, its character, 

35, 36 
Collective bargaining, 81, 82 
Community, the, as a factor 

in industry, 57 
Companies Acts, suggested 

amendment, 101 
Consmners, 61 ; a factor in 

industry, 56 ; claims of, 78 
Control of Industry, 98-105 
Co-operative Production 

Societies, 73 
Co-operative Societies, 72, 73 
Co-partnership, 73, 99-101 


Death-duties, 50, 188 

Debt, National, the problem of, 

Decaying industries, 91 

Democracy, the Liberal atti- 
tude towards, 25 



Democratic State, a product of 
the Capitalist period, 67 

Dictatorship of the proletariat, 
25, 38 

Distribution of product of 
industry, 95-105 


Economy, need for, 172-174 

Education, 161-166 

Excess Profits Duty, 74, 183, 
184, 189; suggested substi- 
tute, 104-105 

Finance and taxation, 43, 171- 

Financial aspect of national- 
isation, 132 

Foodstuffs, production of, 144- 

Foreign trade, its growth tmder 
capitalism, 66 ; our depen- 
dence on, 71 

France, peasant proprietors in, 

Free Trade, 185, 189; efifect 
on Trusts, 110 


Garden Suburb Tenants' Com- 
panies, 72 

Germany, 20, 144, 164 

Guild Socialism, 32, 37, 71, 72, 
123, 124, 195 ; analysed, 
63-65, 68 

Hovising and Town-planning, 

Income-tax, 186, 187, 188 

India, caste-system in, 115 

Individualism, 30-31 

Individuality, a principle of 
Liberalism, 21, 40 

Industrial caste system, 92, 115 

Industrial Councils, 89, 94, 
120 ; their fionctions and 
powers, 83-85 

Industries, decaying, 91 

Industry, general control of, 
81-94 ; detailed control of, 
95-105 ; the five indis- 
pensable factors in, 53-58 ; 
their claims, 76-78 

Ireland, peasant proprietors 
in, 136 

Insurance, Unemployment, 87, 
88, 92-4 

Interest, 48 

Labour, and capital, 63 

disputes, danger of, under 

Socialism, 61 
hours and conditions, deter- 
mination, 83, 84 
legitimate claims of, 77 
manual and brain, 54, 55 
Labour Party, the, 33, 36-38, 

59, 60, 63. 68, 168 
Land, Liberalism and the, 

Land -nationalisation, 134-139 
Lsmd Purchase Act, 141 
Land-vaiues, taxation of, 140, 

Liberalism, and capitalism, 199, 
and the land, 134-143 
and nationalisation, 119- 

and private ownership of 

capital, 49, 51 
defects of 19th century 



Liberalism — cont. 

defined, 15, 19-27, 39-43 ; 
achievements in the 19th 
century, 28 
Principles of Industrial 

Policy, 70-79 
the social ideal of, 202 
Liberal Party, its present 

state, 38 
Liberty, defined, 19, 39 

how affected by Guild Social- 
ism, 64 
Limitation of Profits, 101-105 

effect on trusts, 110, 111 
Lloyd George, Mr., 35, 140 
Luxuries, taxation of, 187, 


Mersey Docks and Harbour 
Board, 73 

Mill, John Stuart, 26 

Mines, nationalisation of, dis- 
cussed, 128-132 

Ministry of Labour, 84, 90 


National income, its amount 
and distribution in 1914, 44 

Nationalisation, 119-133 
of land discussed, 134-139 
a priori gToundaioT, 126, 127 

Output, restrictions on, 113- 

Parliament, 84 

endangered by Socialism, 62 
its unsuitability for indus- 
trial work, 121 
reasons for its diminishing 
influence, 27, 32 

Partnership in industry, prin- 
ciple of, 58, 79, 84, 200 
Producers' Monopoly, 123 
Production, necessity for in- 
creased, 45, 53 
Profits, distribution of, 52 

limitation of, 101-105 
Profit-sharing, 73, 99-101 
Public Health, 159-161 
Public House Trust Com- 
panies, 72 


Railways, nationalisation of, 

discussed, 127, 128 
Representative government, 

its limitations, 26, 27 
Research, 166-170 ; in agri- 
culture, 147 
Reserves, creation of, 104 
Restriction of output, 78 
Russia, peasant proprietors in, 


Sankey Commission, 130 
Service, motive of, 41, 99 
Shipping, 147 
Small holdings, 137, 142, 149, 

Socialism, 71, 72, 108, 120. 
Liberal attitude towards, 21 
State reasons for its growth, 

31, 37 
theory analysed, 59-63, 68 
Social Reconstruction, the 

problem of, 34 
State, claims as a partner in 
industry, 78 
control, dangers and defects 

of, 32 
democratic, developed dur- 
ing capitalist period, 67 
Insurance against unemploy- 
ment, 87, 88, 92-94 



State — cont. 

its functions in regard to 

industry, 75 
Liberal view of the functions 

of the, 23 
the, a factor in industry, 57 
the true function of, 42, 

61, 62 
Syndicalism, 32, 37, 63-65, 
68, 107, 123, 124, 195 

Unemployment, 31 , bearing 
on Profit-shajing, 100 
effects on output, 116; the 
problem of, 85-94 
Universities and Adult Educa- 
tion, 165 ; and Research, 

Tariffs on foodstuffs, effects of, 

Taxation, 171-191 
Trade Unions, the, 38, 54, 63, 
65, 82, 100, 168 

restrictions, 113 

and unemplojTxient, 87, 89, 
Transport, Ministry of, 128 
Trusts, 106-112 


" Unearned Increment," 140, 

Valuation of Land, 140, 188 
Voluntary Hospitals, 161 


Wage-rates, determination of, 

83 ff 
Wages, determination of, 61 
War, the Great, its effects on 

pohtics, 32 
War- wealth Levy discussed, 

Wealth, production of, 44, 46 
Webb, Sidney and Beatrice, 

Whitley Councils, 83 



Los Angeles 

This book is DUE on the last date stamped below. 

JAN 291^ 
APR 2 8 1956 

APR 2 8 ^9^1 



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MAY <) i937 
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RENEWAL „^ ^ ,„_^ 

MAY ) 4 1984 

Form L9-25OT-8, '46 (9852)444 






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